Ship Sale and Purchase

SHIP SALE
AND
PURCHASE
TutorShip
The Distance Learning Programme
of
The Institute of Chartered Shipbrokers
~,
WITHERBY Shipping
F,SiiihfFIJf
Witherby Shipping Business

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Published for the Institute of Chartered Shipbrokers
2011/2012 Centenary Edition
ISBN 978 1 85609 464 1
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TUTORSHIP COURSE BOOKS
PREFACE
Gain a professional qualification and the knowledge to develop your career in the shipping
industry by embarking on a TutorShip course of the Institute of Chartered Shipbrokers (ICS).
The Institute of Chartered Shipbrokers (ICS) is the professional body to commercial shipping
worldwide. The ICS syllabus reflects the breadth and complexity of all the shipping sectors.
The syllabus aims to be Relevant to and Respected by the shipping industry whilst being a
Robust challenge to those candidates embarking on a career in shipping.
The TutorShip series of course books are aimed at preparing students for ICS examinations
through a distance learning programme. Each course has a combination of self assessment
questions and a tutor marked assignment at the end of each chapter. Additionally students
are encouraged to submit a mock examination for marking. On enrolment of a TutorShip
programme a student is allocated a tutor- an experienced practitioner in their sector-
who will guide a student through the course by marking and providing feedback on the
assignments submitted.
Although the TutorShip course books are an invaluable reference to any shipping company
library their true value can only be realised by enrolling on a TutorShip distance learning
programme supported by the expert knowledge of the approved tutors.
For further details on TutorShip courses please contact tutorship@ics.org.uk or visit

www.ics.org.uk
iii
Sf-liP SALE AND PURCf-lASE
iv
EXAMINATION SYLLABUS GROUP 2
SHIP SALE AND PURCHASE SYLLABUS

THE SHIP
Thoroughly understand that the knowledge of ship design and construction required of a Sale
& Purchase Broker is that which is necessary to communicate effectively with a potential
Buyer. Think in terms of the sort of information that a successful car dealer or real estate agent
need in their respective trades.
Thoroughly understand the fundamental differences between dry bulk cargo ships, general-
purpose ships, liners (container, break-bulk and Ro-Ro) and tankers, including Ore/Oil and
Ore/Bulk/Oil carriers. (Students are expected to be able produce fairly detailed sketches).
Understand that Tankers sub-divide into several categories including carriers for crude oil,
petroleum products, chemicals, liquid gases, vegetable oils etc.
Be aware of size ranges of bulk carriers including Capesize, Panamax, Handy-size.
Understand the purpose also basic design and construction features of decks, holds, hatches,
derricks, winches cranes and other cargo handling gear. Be aware of ballasting and ballast
systems.
Understand the terminology of measuring ships including:

Displacement TEU lane metres
DWCC LOA
DWAT LBP
GT Moulded Depth
NT Draft
Bale & Grain Cube Air draft
Understand other dimensions used in ships including freeboard, draft, moulded depth, length
overall, length between perpendiculars, beam extreme breadth.
Thoroughly understand the importance of displacement (especially light displacement)

tonnage in ship sales for demolition.
Understand what information is contained in General Arrangement Plans.
Thoroughly understand the basic characteristics of a ship's propulsion machinery also other
machinery and equipment that may feature in ship sale negotiations.
Understand the trends in ship development especially those which are affected by legislation
and/or international convention (e.g. double skinned tankers). Be aware of perceptions of
future developments which may affect a purchaser's thinking.
GEOGRAPHY
Understand the location of the main areas of current shipbuilding; be aware of the size,
capabilities and specialisation of the major yards. Understand the location of the major Buyers
of tonnage for demolition.
Understand cargoes, trade routes and meteorological phenomena to the extent that these
may influence the types and sizes of ships to be employed.
v
SHIP SALf AND PURCHASE
REGISTRATION AND CLASSIFICATION

Thoroughly understand the need for a ship to be registered.
Thoroughly understand the differences between registration in the Owner's own country (flag
state) and registration in another country (offshore registration). Understand the differences
between flags of convenience and "open registers" operated by traditional maritime nations.
Understand the advantages and disadvantages of each form of registration.
Be aware of the advantages both real and hoped-for arising out of the introduction of tonnage
tax.
Be aware of the manner in which an S & P Broker may become involved in changing a ship's
registration.
Thoroughly understand the need for a ship to be classified and what classification entails.
Understand the role and function of classification societies and the names of the principle
societies. Understand what membership of the International Association of Classification
Societies (lACS) entails. Be aware of the considerable number of real and quasi-classification
societies which do not qualify for membership of lACS.
Be aware of the manner in which an S & P Broker may become involved in changing a ship's
classification.
THE PARTIES INVOLVED

Understand how an S & P Broker must be able to differentiate among the different types
of Shipowners - the Buyers and the Sellers - including individual entrepreneurial Owners;
limited companies large and small; divisions in conglomerates; investment groups which may
purchase for immediate bareboat charter to an Operator; shipping pools. Understand how
their attitude in S & P negotiations may differ.
Understand the role and function of other major players in the S & P market including other
Brokers; ship breakers; Charterers (for example a ship may be sold with an existing charter
commitment); bankers and other financiers.
Understand the role and function of those who may become involved at the time of completion of
a sale including lawyers; notaries; consuls; registrars; classification society representatives.
Be aware of the structure of a typical S & P Broker's office and the importance of record-
keeping.
MARKETS
Thoroughly understand the differences and interrelationships between the markets for
newbuildings, second hand tonnage and demolition. Be aware of how the information each
requires differs in emphasis.
Understand what factors influence the state (firmness or weakness) of the S & P Market
generally and what factors influence each of these markets particularly.
Understand what factors influence the chartering market and how these directly impinge on
the second hand market and indirectly on the demolition market and how current views on the
future of world economy affect the newbuilding market.
Understand the influence on markets of external factors including natural catastrophes;

political crises; environmental disasters; aid programmes.
vi
SYIP SALE AND PuRCHASE Svu_ABUS
Be aware of the markets for tramps, liners and tankers and how different countries may react
to different factors.
Understand the skill required to prepare and to interpret market reports including both statistical
and written reports.
CONTRACTS AND DOCUMENTATION

Thoroughly understand the basic anatomy of an agreement to sell a ship and the essential
differences depending upon whether it is for a newbuilding, a second hand ship or a ship
destined for scrap.
Understand the existence of all the standard Memorandums of Agreement in current use.
Thoroughly understand the most widely used namely Norwegian Saleform.
Understand that there are two Norwegian Saleforms in current use, the 1987 version and the
1993 version. NB. Because many practitioners prefer the tried and trusted to the new and
improved, students should be able to compare the two versions.
Understand the intention of each clause in a saleform, be aware of the Clause numbers of the
more crucial clauses.
Understand the practicalities of the inspection and dry-docking clauses and when these are
customarily carried out.
Understand how to compile additional clauses when these are desirable to supplement or
replace those in the printed form.
Understand the role and function of all other documentation which Buyers and Sellers
normally must produce at the time of completing the sale and the legal transfer of the ship.
Including safety and other compliance certificates. Be aware of the issuing authorities for
these documents. Be aware of representatives of other parties whose presence or electronic
contact may be required at time of handover.
NEGOTIATION
Thoroughly understand the basics of firm offer and counter offer in the negotiating process
and the manner in which it is customary for the two parties each having their respective
Brokers. Understand the importance of time limits in offers.
Understand how to draft an opening offer encompassing all the Principal's requirements
including the wording of any clauses not covered by the printed form and which may have to
be specifically compiled.
Understand how the negotiating process leads to a conclusion necessitating a recapitulation

together with a completion agenda. Be aware of the various "subjects" particularly "subject
inspection" which have to be lifted before the sale is finally complete.
Understand the manner in which a ship's particulars are usually compiled when placing a ship
on the market for sale. Thoroughly understand that such primary information is given on a
"believed to be correct but not guaranteed" basis.
Be aware of the etiquette and ethics customary among S & P Brokers including the commitment
to clients when certain information has been requested and given.
FINANCE AND INSURANCE

Thoroughly understand the different ways a Buyer may raise the funds to finance the
purchase.
vii
SHIP SALE AND PURCHASE
Understand the sources of such funds and the type of information such financiers will
require.
Thoroughly understand the role and function of a mortgage when used as security for a loan
to finance the purchase.
Understand the procedures of leasing and bareboat chartering as methods of acquiring

tonnage.
Be aware of the effect of interest rates, foreign currency and currency fluctuation on the
raising of finance and servicing the loan.
Understand the manner in which the Seller's and Buyer's insurable risk changes as the
negotiations progress and the importance of ensuring cover is obtained at the correct time.
Be aware of the providers of insurance including the role of a P&l Club.
VALUATIONS
Thoroughly understand the duties of a valuer in ship sale and purchase be aware of the
reasons for and types of bodies requiring valuations.
Understand the legal liabilities upon and protection needed by valuers. Understand how a
valuation is presented with particular attention to appropriate caveats.
Understand the information upon which a valuation is based and the method of assessing a
value. Be aware that it does not involve physically surveying the actual vessel.
LEGALASPECTSOFSALEANDPURCHASE
Thoroughly understand the legal position of the Broker in S & P and the relationship with the
Principal.
Understand the principle of the Broker acting under the specific authority of the Principal and
the liability likely to arise if this authority is not acted upon meticulously.
Understand what is involved in breach of warranty of authority both with and without
negligence.
Understand what is implied with the words "free of all encumbrances and maritime liens".
Understand the importance of a valid Notice of Readiness and of the ship arriving within her
cancelling date.
Be aware of the principle areas of dispute including alleged misrepresentation in the description
of the vessel, condition of the vessel on delivery, quantity of bunkers on delivery, alleged
absence of items of equipment on delivery.
Be aware that the Buyer is not obliged to give any reason for declining a ship on inspection.
Understand the Broker's right to a commission and the manner of ensuring this right is
protected.
Be aware of the effect of international conventions and legislation on existing and new ships.
viii
CONTENTS
Preface iii
Ship Sale and Purchase Syllabus v
1 THE SHIP 1
1.1 Introduction 1
1.2 Size and Tonnage 1
1.3 Cargo Categories 4
1.4 Ship Types 5
1.5 Bulk Cargo Carriers - Tankers 5
1.6 Tankers and Oil Pollution 10
1.7 Bulk Carriers - Dry Cargo 11
1.8 General Cargo Ships 12
1.9 Refrigerated Cargo Ships 13
1.10 Container Ships 14
1.11 Ro-Ro Cargo Ships 15
1.12 Passenger Ships 15
1.13 Miscellaneous 16
1.14 Types of Machinery 18
1.15 General Arrangement Plans 19
1.16 Self-Assessment and Test Questions 20
2 SHIP REGISTRATION 21
2.1 The Need for Registration 21
2.2 The Growth of 'Open' Registries 22
2.3 The Current Scene 23
2.4 The Positive and Negative Elements of Flags of Convenience (FOGs) 23
2.5 The Response by Traditional Maritime Nations 25
2.6 Ship Registration and the Ship Sale and Purchase Broker 26
ix
SHIP SALE AND PuRCHASE
3 CLASSIFICATION 27
3.1 Classification Societies 27
3.2 Other Functions of Classification Societies 32
3.3 Tonnage Measurement Regulations 34
3.4 Practical Application for the Sale and Purchase Broker 34
3.5 Classification Society Records 35
4 THE SHIP SALE (PART 1) 37

4.1 The Offer 37
4.2 The Structure of an Offer 38
4.3 Inspection and Inspection of Records 40

4.3.1 Records Inspection 41
4.3.2 Reply Time for Inspection of Vessel and Records 41
4.4 Delivery - Where and When? 41
4.5 Dry-Docking or Diver's Inspection 42
4.6 What is Included in The Price? 43
4.7 Bunkers and Lubricating Oils 43
4.8 Buyer's Crew on Board before Delivery 44
4.9 Same Condition as When Inspected 44
4.10 English Law/Arbitration London 45
4.11 With Class Maintained Free of Recommendations and Free

of Average Damage Affecting Class 45
4.12 The Offer and Counter Offer 46

4.12.1 The First Counter Offer 46
5 THE SHIP SALE (PART 2) 49

5.1 Introduction 49
5.2 Concluding the Sale 49
5.3 Signature on Contracts 58
5.4 Other Sale Contract Forms 58
X
CoNTENTS
5.5 To Sum Up 58
5.6 Brokers' Commissions 59
6 DEMOLITION 61
6.1 Introduction 61
6.2 The Ship-Breaker's Work Place 61
6.3 The Basic Principles of a Demolition Contract 62
6.4 Selecting the Right Buyer 63
6.5 The Sale Contract 64
6.6 Other Sale Forms for Demolition 66
6.7 The Demolition Market 67
7 FINANCE, NEWBUILDINGS AND INSURANCE 69

7.1 Introduction 69
7.2 Funding the Purchase from Own Resources 69
7.3 Borrowed Money 69
7.4 Incentives to Borrowers and Lenders 71
7.4.1 Shipbuilding 71
7.4.2 Leasing 73
7.4.3 Other Methods of Finance 73
7.5 Newbuildings 73
7.5.1 The Sale Contract 74
7.6 Insurance 75
7.7 Insurance for the S & P Broker 76
8 LEGAL ASPECTS OF SHIP SALE AND PURCHASE 79

8.1 Introduction 79
8.2 The Ship Sale and Purchase Broker 79
8.3 The Broker's Commission 80
xi
8.4 The Law and the Saleform 81

8.4.1 When Does a Binding Contract Exist? 81
8.4.2 Identifying the Parties 81
8.4.3 The Price and Payment 82
8.4.4 Inspections 82
8.4.5 Cancelling Date 82
8.5 Spares, Bunkers etc. 83
8.6 Maritime Liens and Encumbrances 83
8.6.1 At Place of Delivery 84
8.6.2 Default by Either of the Parties 85
8.7 Dispute Resolution 85
8.8 The S & P Broker's Role When Principals are in Dispute 86
8.9 Ethics Among S & P Brokers? 87
9 THE MARKETS AND THE PARTIES INVOLVED 89

9.1 Introduction 89
9.2 Shipowner Personalities 89
9.3 Dry Bulk Carriers 90
9.4 General Purpose Ships 92
9.5 Small Ships 92
9.6 Passenger Ships and Ferries 93
9.7 Obsolete Tonnage 93
9.8 Who Should an S & P Broker Know? 93
9.9 What Should an S & P Broker Know? 95
9.10 Test Questions 95
10 DOCUMENTATION AND SHIP VALUATION 97

10.1 Part One- Documents and Procedures on Delivery 97
10.2 Part Two- Ship Valuations 100
APPENDICES 103
MOCK EXAMINATION 164
XII
Chapter 1
THE SHIP
1.1 INTRODUCTION
The Sale and Purchase Broker is concerned - as an intermediary - with the selling and
buying of ships and anyone intending to pursue a career in this area of shipping business, or
to understand how it operates, must have a strong knowledge base in respect of the product
being sold. A proper understanding of ship details is therefore an essential part of the Sale
and Purchase Broker's armoury. It is important to understand fully and to memorise what is
meant by the following.
1.2 SIZE AND TONNAGE

A ship can have five different tonnage measurements and it is vital when comparing one
vessel with another that the same tonnage measurements are used. Most of the following
measurements can be found on the ship's plans. Tonnage can be expressed in long tons
(2240 lbs.) or metric tonnes (1 ,000 Kg). Tonnages are:
i) Deadweight (dwt). The weight of cargo, stores, fuel, passengers and crew carried by
the ship when loaded to her maximum permissible draught in salt water.
The abbreviation dwat will often be encountered as it stands for deadweight all told. This
is to differentiate it from dwcc which refers to deadweight cargo capacity.
ii) Gross Tonnage {GT). The use of the word "tonnage" here is really a misnomer as gross
tonnage is essentially a measure of volume. Originally Gross tonnage was calculated at
100 cubic feet to the ton but, under the International Convention on Tonnage Measurement
of Ships 1969 which came into full force in 1994, Gross Tonnage is defined broadly as
the capacity in cubic metres of all the spaces within the hull, and of the enclosed spaces
above the deck available for cargo, stores, fuel, passengers and crew with certain
exceptions. A Gross Ton is between 2.5 and 3 cubic metres; there is a scale depending
upon the ship's size which determines exactly which figure of cubic metres shall be used
to calculate the GT.
iii) Net Tonnage {NT). Is based upon the same scale as for gross tonnage as defined above
but it is the interior volume less deductions for crew, engine, propelling and navigating
spaces. It can be considered as a crude measurement of the revenue earning capacity
of the ship. NT shall not be less than 30% of the GT.
GT and NT are not accurate measures of a ship's carrying capacity, a better method is
the measure of grain and bale cubic (see later). However, GT and NT are favoured by
many port authorities as a convenient measure upon which to base port dues. GT is also
used when seeking to enhance the sheer size of a passenger/cruise liner.
iv) Light Displacement or Lightweight {ldt). The actual weight of the vessel in long tons
or tonnes. It includes full equipment plus the weight of the machinery, boilers, and spare
parts, but excludes bunkers, cargo, dunnage, provisions, water and other consumables.
SrtiP SALE AND PURCHASE
This is a very important measurement for ship sale and purchase brokers because it is
a measure of the actual weight of metal (mainly steel) which is a vital figure when a ship
is being sold for demolition.
v) Displacement. This represents the total weight of the ship and everything on board. The
volume of water displaced will vary according to whether it is salt water or freshwater but
not enough to make much difference. This tonnage is not used for merchant ships but
always for warships.
Capacity
Another important measurement of merchant ships is that of the actual volume of the holds.
This is because many cargoes are so light that the ship can be physically full before being
loaded down to her permissible draught. There are two such measurements, Grain capacity
and Bale capacity which can be expressed in cubic metres or cubic feet.
Grain capacity is the volume of cargo spaces measured to the outside of frames, to the top of
ceiling and to the top of beams, including hatchways (insulated spaces are not included). NB
the word "ceiling" in maritime terms means the bottom of the hold, not the part overhead.
Bale capacity extends to the inside of cargo battens and to underside of beams. The names
become self explanatory when one considers the fact that a bulk cargo such as grain can
flow around beams and frames and fill every part of the hold whereas cargo which comprises
individual pieces (such as bales) will not be able to flow into spaces between frames etc.
TEU This is the customary method of referring to the carrying capacity of a container ship; the
initials stand for Twenty Foot Equivalent Units. Despite widespread standardisation of metric
measurements in the maritime world, because containerisation began in the USA, which still
retains pre-metric standards of measurement, freight containers are referred to in feet and
inches. Except for specialist units, containers are either 20 feet or 40 feet long by 8 feet wide
and 8 feet 6 inches high. A 20 foot container is one teu and a 40 foot container, two teus.
Occasionally one may encounter reference to FEUs (forty foot equivalent units).
Lane Metres (LM) This is the manner in which ships designed to carry wheeled cargo are
measured. These include car carriers and Roll-on Roll-off (RoRo) ships and as the name
implies, it is measure of the length of the lanes in the cargo decks. In the case of car carriers
one would need also need to know the headroom to get a meaningful measure of the ship's
carrying capacity.
Freeboard
Reference has already been made to 'permissible draft' (this may also be spelled draught)
but it is the freeboard with which the international safety authorities are concerned. Freeboard
is the vertical distance between waterline and the uppermost continuous deck equipped with
permanent means of closing all openings which are exposed to the elements. The waterline
is that which is dictated by the load line.
Load Line
By international convention, all merchant ships must be marked with a load line. The upper
edge of this line indicates the maximum permissible draught. The load lines - known as the
Plimsoll Mark- are set off amidships, on both sides of the ship, at specified distances below
a deck line thus:
2
TH!' SHIP
Diagram 1.1
t
Assigned summer 25 mm
freeboard r+-- 540 mm _______..,II, . _
II
II
___..,.
TF
::+230mm~
II
II
II
:
I
I
I
I
F
T
I
I
I
I
I w
I
I
I 1--....;,;,WNA
I
I I
I I I
1.._300 mm__.l I
I
I I
,.__450 mm_____.,
Forward----+
TF =Tropical Fresh Water F =Fresh Water T =Tropical

S =Summer W =Winter WNA =Winter North Atlantic
{Except where stated the marks refer to normal salt sea-water)
The reason for the variations is that the more severe the expected weather, the greater the
amount of freeboard that is needed for safety. Thus WNA (Winter North Atlantic) being the
area of the most treacherous weather is where the greatest freeboard is required.
The upper edge of the summer line, if continued, passes through the centre of the load line
disc and is the basic line.
On the line you will see the initials LR which relate to the classification society which surveyed
the ship to determine the positioning of the mark. In this case the LR relates to Lloyds Register,
but there are many more such as AB (American Bureau), BV (Bureau Veritas), Rl (Registro
Italiano) and so on.
Light Draft {draught)

The vessel's draft at light displacement is called "light draft".
Suez and Panama Canal Tonnage

Both of these authorities have their own rules for the measurement of gross and net tonnage
and ships using the canals are charged on these tonnages.
Moulded Depth
The vertical distance amidships from the top of the keel to the top of the upper deck beam at
the side.
Overall Length (l.o.a.)

The extreme length of the ship. When the overall length is followed by the notation (BB) it
indicates that the ship has a bulbous bow and the overall length includes that bow.
Length B.P {between perpendiculars)

The distance on the summer load waterline from the fore side of the stem to the after side of
the rudder-post, or to the centre of the rudder stock if there is no rudder-post.
Extreme Breadth
The maximum breadth to the outside of the ship's structure and in paddle ships includes the
paddle boxes.
3
Moulded Breadth
The greatest breadth amidships from heel of frame to heel of frame.
Scantlings
All structural parts such as frames, beams, shell plating, bulkheads used in the construction
of ships are covered under this heading. The classification societies have fixed rules and
tables for the construction of steel ships, which must be observed by shipbuilders in order to
obtain the required certificates.
Air Draft
This is an unofficial measurement but one that S & P Brokers may encounter. It is the
measurement from the waterline to the ship's highest point (usually the top of a mast). Its
importance comes into effect in trades which involve negotiating waterways where bridges
may be a problem.
1.3 CARGO CATEGORIES

A general understanding of different cargo categories and the cargo-handling modes should
be considered before a study is made of the various types of merchant ships involved in their
carriage.
Cargo categories may be defined as follows:

i) GENERAL CARGO - diverse types and forms of cargo (which may be carried
simultaneously or alternatively depending upon the ship's trading pattern). General cargo
often involves manufactured or semi-manufactured goods.
ii) CONTAINER CARGO - cargo carried in purpose-built cargo containers constructed
according to ISO container standard dimensions and strength requirements.
iii) RO-RO CARGO - general cargo which can be loaded/unloaded to or from cargo decks;
in/on wheeled vehicles; cargo loaded or unloaded by wheeled transport (e.g. fork lift
trucks, tractor units).
iv) BULK CARGO- liquid or loose cargo (of a homogeneous nature) which is not in any
form of packing within the ship's tanks/holds.
Cargo Handling Modes may be defined as follows:
LIFT-ON/LIFT-OFF- the loading/unloading of dry cargo by the ship's own derricks/cranes, or

by shore-based cranes or gantries.
ROLL-ON/ROLL-OFF - the loading/unloading of cargo by way of the ship's doors/ramps

(and in conjunction with shore-based cargo handling facilities).
PUMP-ON/PUMP-OFF - the loading/unloading of liquid cargo by way of shore based/ship

based pumping and pumping equipment. Almost invariably the shore facilities pump the cargo
IN and the ship pumps the cargo OUT.
FLOAT-IN/FLOAT-OUT - the loading/unloading of floating cargo by way of either the ship's

bow door or the ship's stern door/ramp, whilst the ship is in a semi-submerged state.
FLOAT-ON/FLOAT-OFF- the loading/unloading of floating cargo to/from the ship's weather

deck cargo space whilst the ship is in a semi-submerged state.
SPECIALISED HANDLING - with the growth of modern technology a wide variety of highly
specialised equipment has evolved which may include one or more of the main modes of
cargo handling. For example, coal and ore may be discharged by an "Archimedes Screw"
device which feeds a conveyor belt. Bulk grain may be discharged by suction or by a system
4
THE SHIP
of dredger type buckets feeding a conveyer into the grain elevators. Some modern bulk
carriers designed for a particular trade (e.g. coal) are "self-unloaders" having the discharging
equipment as part of the on-board equipment.
1.4 SHIP TYPES

Refer to Appendix 1 and locate the profile of each of the ships described below. In some
cases the sketches include arrows showing the manner in which the cargo is loaded.
When considering ship types it is important to have a clear mental picture of the vessel
concerned and the best way to do this is to develop the skill of producing sketches. The basic
points to display in such a sketch can be seen from the following outline.
Diagram 1.2 - A Basic Ship Type

I
: 4 - - - - - - - - - - - L e n g t h overall ( L O A ) - - - - - - - - - - + :
Sheer _ t_
aft-.-
1
t__ Sheer
.--Forward
Summer load I 1 Freeboard 1
waterline --+--- -------------------------- ---------------------------- --
IJ[ Midships
' + - - - - - - - L e n g t h between perpendiculars (LBP) _ _ _ _ _ _....,

Camber 1 1
• --.: :.- Tumblehome
------~~------'"
t
,,..,, """"' !·---
~ D•]~h:_: :-, B_re-ad-th~ ~ -=- -:_: ~----·
Moulded
extreme
__,.,_,___
.,. __h:l_;r.;:_;;:_-
1.5 BULK CARGO CARRIERS- TANKERS

Tankers are designed for the carriage of oils, chemicals, liquefied gases, edible liquids (e.g.
vegetable oil, wine, orange juice etc) fresh water and other liquids. They are almost invariably
described in terms of deadweight tonnage (dwt) because this is the basis on which they are
chartered.
The cargo-handling mode for tankers is pump on/pump off. Almost invariably shore pumps
are used for loading and the ship's own pumps for discharging, this is because pumps are far
less efficient 'sucking' than they are pushing.
Tanker types include Oil Tankers - for the carriage of crude oil, refined petroleum products
and similar flammable liquids. The pattern of the oil trade is for the crude oil to be loaded near
the point of production (the oil wells) and taken to refineries near the areas of consumption.
It has, therefore been possible for oil companies to take full advantage of economies of scale
in connection with the size of crude carriers and S & P brokers will encounter the term VLCC
(Very Large Crude Carrier) and ULCC (Ultra Large Crude Carrier). Both VLCCs and ULCCs
can sometimes be described as "Capesize" because they are too large to transit either the
Panama or the Suez Canals and thus have to be routed round Cape of Good Hope or Cape
Horn.
5
SYIP SALE AND PuRCHASE
Diagram 1.3 -A Typical Tanker Configuration
Hose handling
Accomodation
y
I I
I I
I I
I I
I I
II I I I I I I I
--------LL--~----~--------L--------~--------- --------L--------~-------
I I
I I
~~~-------------,----
' I
I I
I I
I I
I I
... ..,. I I
~-------------,----
' I I
I I I
Slop tank Wing tank
A typical modern Capesize tanker will be double-skinned, have all machinery and
accommodation aft, a small crane amidships to handle the hoses used for load/discharge
and a small crane aft to load stores.
The cargo space will be divided athwartships, typically into five compartments each of which
is in turn divided by the two longitudinal bulkheads which run the length of the ship; this
effectively provides fifteen tanks. The several tanks each connected by pipelines to the
discharging manifold, enables the cargo to be loaded and discharged evenly. If some tanks
were emptied completely whilst others left full there would be bending stresses to the hull
which could prove catastrophic.
In addition to cargo tanks there will be segregated ballast compartments; much of the ballast
water is carried in the double bottom and in the side spaces. The segregation ensures that
no oil becomes mixed with ballast water so that there is no risk of pollution when discharging
ballast. Ballast water has to be taken on/discharged, evenly across the ship, in the same way
as cargo in order to avoid undue stresses. Ballast is essential on the non-cargo part of the
voyage in order to bring the ship deep enough in the water to be stable and for the propeller
to be submerged.
Between the cargo section and the accommodation/machinery space there will be a
cofferdam. This ensures complete separation of the cargo with its potential for inflammable
gases, from the living quarters as well as providing space for the cargo pumps.
ULCC - Ultra large crude carriers are in the region of 350,000 dwt or larger. The largest
ever built was a little over half a million tonnes deadweight; many naval architects designed
tankers larger still, even up to one million tonnes but they were never seriously considered
by the trade.
VLCC - Very large crude carriers range from 200,000 to 300,000 dwt and these are the
archetype Capesize class.
Typical dimensions of a VLCC would be:

Length overall (LOA) 330/340 metres
Breadth 58 metres
Draft 20/21 metres
Deadweight 300,000 tonnes
Service speed 15/16 knots
Fuel consumption 50/55 tonnes per day
6
THE SHIP
Suezmax - 100,000 to 160,000 dwt with dimensions which enable it to transit the Suez
Canal (but not the Panama Canal). This size is often referred to as a "million barrel tanker"
because although in the chartering and S & P world tankers are referred to in deadweight
tonnes, the oil itself is referred to in barrels (bbls). This dates back to the days when a barrel
was the only way of transporting liquids and this is still the unit used when buying and selling
oil. A barrel in this context is 42 US gallons (approx 160 litres) and crude oil is usually traded
in lots 500,000 bbls. Crude oils vary considerable in their specific gravities so that it is not
possible to say what the weight of a barrel of oil will be but a very rough figure is six barrels
to a tonne.
Despite its name, tanker traffic through the Suez Canal is not so great as may be expected
because many Mediterranean destinations are now reached by pipelines and the economies
of scale that are achieved with Capesize tankers often produce a lower delivered cost, bearing
in mind that Suez Canal Dues have to be paid on that route.
A Suezmax tanker would have the same basic configuration as a VLCC but typical dimensions
would be:
Length overall (LOA) 275 metres
Breadth 45 metres
Draft 16/17 metres
Deadweight 140/145,000 tonnes
Service speed 14/15 knots
Panamax- 55,000 to 70,000 dwt able to transit the Panama Canal fully laden. The restrictions
of the Panama Canal are because, unlike Suez which travels through flat country, Panama
has to negotiate a difference in land height of approximately 26 metres which is achieved by
locks. It is the size of these locks that governs the size of ships which can pass through the
canal.
A typical Panamax tanker's dimensions would be:

Length over all (LOA) 225/275 metres
Breadth 32 metres
Draft 12/13 metres
Handysize- a loose expression covering ships from 30,000 up to 100,000 more used in the
products trades than in crude oil business
Aframax- although originally, AFRAMAX was 79,999 dwt it is now applied to ships between
70,000 and 119,999 dwt. Aframax tankers usually have a speed around 14/15 knots.
AFRA is the acronym for Average Freight Rate Assessment. These are rates assessed
periodically by the London Tanker Brokers Panel at the behest of the major oil companies.
The majors use AFRA as a source of unbiased "market" rates when they buy oil from each
other. Other organisations also use them for different purposes. As you would expect, the
larger the ship the lower the rate per ton and one such cut off size is 80,000 dwt thus a ship
of 79,999 dwt is the maximum size in that bracket. Some people have referred to AFRAMAX
as another form of "paragraph ship".
Although Aframax ships have been included here in the crude section, the term refers only
to the size and such ships may be found in the products trade (clean and dirty- see below)
even in the chemical trades.
Crude Carriers Generally Tankers are invariably built with their machinery and
accommodation all aft. The tanks themselves are sub-divided into several sections both fore
and aft and athwartships. This serves three purposes, first, it gives structural strength to
the ship. Secondly having many small compartments the free-surface effect is minimised;
were there one large tank, if the ship heeled over the weight of liquid moving to the lower
side would cause the ship to capsize. A third benefit is that should there be more than one
consignee, the different parcels can be kept separate.
7
All the tanks are linked by a system of pipelines which enable the cargo to be transferred
between the tanks and the load/discharge manifold which is the link between the ship and
the shore tanks.
There is a cofferdam (a separate compartment) immediately aft of the tanks one purpose of
which is to ensure complete separation of the inflammable cargo from the accommodation/
machinery space. The cofferdam also contains the pumproom which serves a complex
arrangement of pipelines serving all the tanks and the discharging manifold. It is common
now for the pumps to be steam-turbine driven.
Many tankers are also equipped with heating coils to ensure that the cargo does not become
too viscous to be pumpable.
By international convention, all tankers have segregated ballast tanks (SBTs) to ensure that
ballast water no longer enters the cargo tanks which would cause oil residues to be dumped
in the sea when ballast is pumped out.
Because crude oil has all the different fractions from light unstable gases to thick tarry material,
any empty space in a tank would soon be filled with a mixture of gas and air- an explosive
combination. The same risk applies when the cargo has been discharged but oil residues
remain. To obviate risk, the empty space is filled with an inert gas which is usually generated
from the engine exhaust suitably treated. The treatment device and the pipeline system is
called the Inert Gas (IG) system.
After normal discharge, the sides and bottoms of the tanks are coated with oil residues which,
in the past, were cleaned with water sprayed around the tank by a device rather like a giant
lawn sprinkler (A Butterworth system). This produced an oil/water emulsion which had to be
separately dealt with by the refinery. More recently it was discovered that by using some of the
ship's own oil cargo under pressure, a satisfactory cleaning result could be obtained. Therefore
most crude carriers today are equipped with a Crude Oil Washing (COW) system.
Do not overlook that new tankers are now built with double skins and eventually all tankers,
with a few rare exceptions will all be of this configuration.
Diagram 1.4 -A Double Bottom Configuration

Web frame
I
I
EJ
I
I
I
I
Centre tank Wing tank
Void Void
____.
space
...._
space
Double Bottom
8
Tf-!E SHIP
Diagram 1.5 -A Product Carrier
The sizes oftankers designed for carrying refined petroleum products vary widely depending
upon the trade for which they are intended. 45,000 dwt is a fairly common size for this trade
although up to 100,000 is not unusual.
S & P Brokers will encounter the expressions "clean" and "dirty" as descriptions of product
carriers; this indicates the type of trade the ships have been in. Gasoline (petrol), kerosene
(paraffin) and other light coloured products are referred to as "clean" whilst dark coloured
products, such as heavy fuel oil, are "dirty"; tankers regularly in the dirty trades usually have
heating coils. Although it is possible to clean a tanker from dirty to clean, it is an expensive
business and seldom happens.
Almost all the cargoes carried in product tankers are intended for use without further refining
thus cleanliness and avoidance of contamination is important. For this reason it is common,
especially for ships designed for clean products, to have the tanks coated with an epoxy (inert
plastic) coating to avoid any cargo contact with bare steel and to make cleaning easier. Tank
cleaning in product carriers is by high pressure washing with water; there is no equivalent of
COW in product carriers.
Product carriers, especially those in the clean trades, are able to segregate grades of cargoes;
the ability to carry four separate grades is common.
Chemical tankers- Crude oil yields many more materials than those simply used for burning;
there are a wide variety of by-products many of which have fire hazards in excess of those
of gasoline and similar flammable liquids, or significant hazards in addition to or other than
flammability such as reactivity, corrosive or toxic properties. The tanks of chemical carriers
are invariably treated with some form of coating so that the cargo never comes into contact
with the bare steel.
The coatings vary because no one coating is impervious to all the likely cargoes. S & P
Brokers intending to specialise in the chemical tanker trades should acquaint themselves
with the different types of coating and the cargoes for which they are intended. A principal
would not thank a broker for wasting time proposing ships with a coating incompatible with
the buyers intended business.
Some chemical cargoes are aggressive to any form of coating and so demand stainless
steel tanks. Many chemical cargoes can be rendered unusable by the smallest degree of
contamination so modern chemical carriers have a separate pump for each tank.
Parcel Tankers are a highly specialised ship designed, as the name implies, for the carriage
of several part cargoes or "parcels", usually of chemicals or products of a high degree of purity
demanding scrupulous care in handling to ensure there is no contamination. The segregation
of the tanks and pumping systems is of a particularly complex. Four pump rooms would not
be unusual and in many cases the pumps (hydraulically driven) will be submerged in the
tanks themselves.
9
SrliP SALE AND PURCHASE
Diagram 1.6 - A Typical Parcel Tanker
Liquefied Natural Gas {LNG) Carriers - as the name implies, LNG is gas as is found in its
natural state. This is mainly methane and is used as a fuel. In some cases (e.g. the North Sea)
natural gas is pumped straight from the gas wells to the gas mains for home and industrial
heating. To be transportable in liquid form, LNG has to be refrigerated down to minus 160° C.
This involves special tanks, often of spherical design, quite separate and insulated from the
ship's hull which would become brittle at such low temperatures.
Liquid Petroleum Gas (LPG) Carriers- LPG is found within crude oil deposits and is also a
product of the refining of crude oil. Mainly butane or propane it will be familiar to smokers as
fuel in cigarette lighters or to campers in their portable cooking stoves, there are, of course,
many other industrial uses for LPG.
LPG carriers are of various designs, some carry their cargo under pressure to keep it in liquid
form, others semi-refrigerated/semi-pressurised or fully refrigerated. The design depends
upon the type of cargo for which the ship is intended.
Other Bulk Liquid Carriers are designed for specific tasks including some special chemicals,
acids, vegetable oils, fruit juice, wine etc and in many of these cases the containment system
does not form part of the hull structure (independent tanks).
1.6 TANKERS AND OIL POLLUTION

The majority of tanker owners are highly responsible people and their trade association -
INTERTANKO - has made an undisputed claim that do-it-yourself motor enthusiasts cause
more pollution with their discarded engine oil than is caused by INTERTANKO members.
The fact is, however, when a loaded tanker does become a casualty the oil pollution causes
considerable environmental damage.
Most tankers were originally designed for the carriage of their cargoes in a containment system
which forms part of the hull structure (integral tanks), the arrangement of which depends
upon the nature of the cargo itself. However, with the world's greater concern about pollution
of the oceans and coastlines by spilled oil, tankers are now being built with double hulls so
that if the outer hull is pierced through collision or grounding, the oil does not leak out.
As long ago as 1990 The United States of America introduced their Oil Pollution Act 1990
{OPA90) which act insists upon all tankers entering their territorial waters being double hulled.
This was in reaction to several serious oil spills but in particular the "Exxon Valdez" which
grounded in Prince William Sound. Alaska and spilt many thousands of tonnes of crude oil,
resulting in colossal clean-up costs. OPA90 also demands that ships trading with the USA
10
THE SHIP
have to have Certificates of Financial Responsibility (COFRs) which ensure that any ship
causing pollution will have the financial capability to pay the clean-up costs.
Nine years later, the 24 year old Maltese flagged "Erika", on a voyage from Rotterdam to
Leghorn in Italy broke in two in a storm off the coast of France dumping about 14,000 of her
37,000 tonnes cargo of heavy fuel oil. Heavy fuel oil can be an even worse pollutant than
crude oil because the former is extremely sticky and hard to clean up. Much of the spilt oil
reached the coast of Brittany causing massive pollution, not only to pleasure beaches but
more especially to shellfish stocks which were a major source of local income.
This casualty caused a widespread international reaction with blame being aimed in turn
at the shipowners (a one-ship company), the French charterers (TotaiFina), the flag state
(Malta), the ship's classification society (Registro ltaliana}, even the International Association
of Classification Societies (lACS) whose purpose in life is to monitor those classification
societies who are their members.
In the end the role of "class" was held by many to be most culpable. There was also, of
course, considerable concern expressed as to whether Port State Control was as effective as
it should be and this particularly exercised the minds of the European Union. The EU started
talking in terms of copying the USA and introducing anti-pollution regulations unilaterally,
In the event the members of the International Maritime Organization (IMO) took up the
challenge and agreed to introduce a revised Regulation 13G of Annex I of the Marine Pollution
Convention (MARPOL). The Marpol convention had already introduced rules concerning
ships having segregated ballast tanks (SBTs). Previously, tankers when needing stability on
the ballast run, would simply flood some of the tanks. This meant that when the ballast water
was discharged it would take with it considerable quantities of oil residues. SBTs ensure that
ballast tanks never contain oil, only water, so that there is little or no pollution when ballast
water is discharged prior to loading.
The latest revised convention decrees that, by the year 2015, all single hulled tankers (with a
few special exceptions) will have to be scrapped. The trade refers to 2015 as the "drop-dead
phase-out date". To ease the impact there was a phase-out schedule which started in 2003
when tankers built before 1973 had to go. Then in 2004 those built in 1974 and 1975 had to
be scrapped and so on until by 2015 all the single hull tankers will be gone.
There is little doubt that this programme will have a considerable impact on the tanker
chartering markets because many hundreds of tankers (one estimate is 2200) will have to be
scrapped. It will obviously also have an influence on the prices quoted by shipyards for the
replacements and by breakers being offered the single hulled ships for demolition. Just what
the impact will be is the subject of countless articles in the shipping press but perhaps only
time will tell.
1. 7 BULK CARRIERS - DRY CARGO

These are ships designed specifically for the bulk carriage of loose dry cargo of a homogeneous
nature such as coal and grain from Australia and the USA. Dry cargo bulkers do not reach the
exceptionally large sizes common in the tanker trades. All ships within the bulk carrier category
are single decked with machinery and accommodation aft. They have wide hatches to allow
direct vertical loading without the need for "trimming" (levelling the top of the cargo-mound).
The interior of the holds are unobstructed to allow free use of grabs for discharging. Space
for ballast water is in "wing" tanks, tanks with a triangular cross-section along the bottoms
of the holds and under the deck to give a "hopper'' effect which also aids easy discharge.
Ballast tanks are thus deployed along the whole length of the ship so that excessive bending
stresses can be avoided at any stage from empty, through partially loaded/discharged to
empty of cargo. High capacity ballast pumps and a comprehensive ballast pipe-line system
aids in this procedure.
11
S>11P SALE AND PuRCHASE
The hopper shaped holds in bulkers also provide a safety feature in the carriage of grain
cargoes because the wing tanks reduce the free surface at the top of the load: grain can flow
like a liquid under the stress of a ship rolling.
A Buyer who contemplates using a bulker in the iron ore trade as well as, say, coal and
grain should ensure that the ship is properly strengthened because iron ore is an unforgiving
trade.
The cargo-handling mode for bulk-carriers is lift on/lift off, usually by grabs except for grain
which more generally involves conveyors and/or suction for loading/discharging. The larger
classes of bulk carrier are almost invariably gearless, as they depend upon the fast shore-
based equipment for loading and discharging. The exception is a class of sophisticated
specialist ships which have conveyor systems on board and are known as "self unloaders"
Capesize Bulk Carriers. These are ships in the 120,000 dwt plus range; 200,000 dwt is
currently about the maximum. As their name implies they are too large to negotiate the Suez
or Panama canals and their routing has to be via either the Cape of Good Hope or Cape
Horn.
Panamax Bulk Carriers -are in the 60/80,000 tonne range and are a popular size because
as the name implies, such vessels are designed to carry the maximum amount of cargo within
the constraints imposed by the locks in the Panama Canal.
Handymax Bulk Carriers - is the name used to relate to ships in the 40/60,000 tonne
range.
Handy size Bulk Carriers- the name tends to cover anything from a thousand or two up to
40,000 dwt. Many of these ships have their own cargo gear.
Diagram 1.7- Typical Handy Size Bulk Carrier
Ore Carriers are designed with centre holds (and wing ballast tanks) and weather deck
hatches specifically for the bulk carriage, in centre holds only, of ore. Because of the density
of metallic ores, such ships have a relatively low cubic capacity but because of the rough
treatment that the loading and grab discharge can inflict, ore carriers may be of a more robust
construction than a bulk carrier design for less heavy cargoes.
Ore/Oil Carriers and Ore/Bulk/Oil Carriers are designed with combined topside and
hopper tanks and are strengthened for the carriage of ore, and with additional facilities for
the alternative (but not simultaneous) bulk carriage of oil and other liquid cargo (the cargo
handling mode for which is pump on/pump off).
1.8 GENERAL CARGO SHIPS

These are designed with holds and weather deck hatches for the carriage of diverse types
and forms of cargo. These are the ships which are generally referred to as tramps. The cargo
handling mode is lift on/lift off.
12
THE SHIP
Features may include one or more of the following:
Holds divided by one or more tween decks with openings giving access to the lower
spaces.
Cargo carried on the weather deck/hatch covers.
Facilities pertaining to the carriage of specific types of cargo (e.g. heavy lift derrick/crane,
container securing arrangements, hoistable vehicle decks, deck pens for livestock,
etc.).
Strengthening for the carriage of heavy cargo.
A part of refrigerated cargo space for the carriage of perishable cargo.
The carriage of liquid cargo (usually vegetable oil) in specially designed holds/tanks.
Additional cargo handling by way of side doors/side loader.
Additional cargo handling by way of weather deck ramp.
Additional cargo handling by way of stern (quarter) door/ramp to the tween deck (and
where additional cargo segregation is provided by hinged door openings).
The simultaneous or alternative carriage of bulk cargo and other forms of cargo.
Accommodation for up to 12 passengers, the maximum permitted without special
facilities.
Alternatively they may be designed as passenger/general cargo ships having additional
facilities for the carriage of more than 12 fare-paying passengers, all of whom are
accommodated in cabins (berthed).
Diagram 1.8 - Typical General Cargo Ship

Accomodation
Steering
gear
No.5
hold Machinery Fore
peak
space
Double bottom
peak
1.9 REFRIGERATED CARGO SHIPS

Included in this category are ships having a fully refrigerated cargo space, comprising multi
tween-decked holds, specifically for the carriage of perishable cargo.
The cargo-handling mode may be lift on/lift off (by way of weather/tween deck hatches) or
alternatively, cargo handling is by way of a side loading system. With the advent and wide use
of refrigerated containers, fully refrigerated ships now tend to be confined to special trades.
Other features may include one or more of the following:
Additional cargo handling by way of side doors.

The additional carriage of (refrigerated) liquid cargo in specially designed holds/tanks.
The alternative carriage of other (non-refrigerated) types and forms of cargo.
13
S>-tiP SALE AND PURCHASE
Diagram 1.9 - Typical Reefer Ship
1.10 CONTAINER SHIPS

These are designed with holds and weather deck hatches specifically for the carriage of
containers.
The cargo-handling mode is lift on/lift off and other features may include holds with cellular
guides (and weather deck mounted guides) to facilitate the positioning of the containers and
their restraint during transit. The most recent designs are hatchless to facilitate uninterrupted
cell guides.
Most large container ships have facilities for refrigerated containers either with their own
cooling machinery needing an electric supply or with vents which may be connected to the
ship's own refrigerating plant.
The size of container ships is seldom referred to in tonnage terms but in the number of
containers that can be carried. Cargo containers are of internationally agreed standard
dimensions with their lengths being either 20 feet or 40 feet. Ships capacities are therefore
referred to as TEUs (twenty-foot equivalent units) thus one 40 foot container is two teus.
The larger container carriers up to 12,000 teu and beyond that are used on major routes
are invariably gearless, depending upon sophisticated shore equipment for loading and
discharging. Larger ships are in the design stage but bringing them into general service will
depend on several factors not the least of which is the operators' confidence in sufficient
cargo being available on each sailing to utilize their extra capacity. Such confidence will have
to be strong enough to warrant the extra building costs. Furthermore these larger container
carriers will be too wide for the existing shore gantries so terminal operators are having
to consider large investment programmes in new berth configuration and the purchase for
example of super post-Panamax cranes which have an outreach of approx. 22 containers.
Diagram 1.10- Containership Typical Layout
'' ''
~~~~t~===lt~===l~t:=:!. ~'·-===~m~tE~ "t---

.----
... ___ ,!"' __ _
r---1 ~---
As well as thinking "larger", shipowners are now thinking "faster'' and a new design of 40 knot
1400 teu ship is now a reality with proponents of this service intending to offer a seven-day
door-to-door transit time Europe/East Coast USA.
14
THe SHtP
Containers destined for smaller ports are transhipped into feeder ships which are often
around 1500 teu but can even be as small as 200 teu. The smaller feeders tend to serve
unsophisticated ports and such small container carriers often have their own lifting gear so
that they can operate in ports that have no cranes.
1.11 RO-RO CARGO SHIPS

Diagram 1.11 - Typical Ro-Ro ship
9BOC - ·- 42.70
These are designed with decks specifically for the carriage of road vehicles/trailers, and cargo
in pallet form or in containers loaded/unloaded by wheeled transport. The cargo-handling
mode is roll on/roll off.
Ro-Ro ship features may include one or more of the following:

The carriage of cargo on the weather deck by way of an internal ramp/lift, side ramp, or
lift on/lift off.
The additional carriage of other (specified) types and forms of cargo in holds/tanks under
the main (ro-ro) deck and accessed by way of deck panels.
Facilities pertaining to the carriage of specific types of cargo (e.g. hoistable vehicle decks,
deck pens for livestock, etc.).
The additional cargo-handling mode of lift on/lift off to/from the main (ro-ro) deck by way
of weather deck hatches, and where any additional cargo segregation is provided by
hinged or hoistable deck panels.
There are also Passenger/Ro-Ro Cargo ships which have the additional facilities of more
than 12 fare paying passengers (including the drivers of vehicles), all (or most), of whom
are accommodated in cabins (berthed).
A Ro-Ro Container ship is designed with an aft section of that of a Ro-Ro Cargo ship
and a segregated fore section of that of a Container ship for the carriage of containers
(throughout), or containers and other ro-ro cargo (including road vehicles/trailers and
new unladen road vehicles).
A specialised type of Ro-Ro is the Pure Car Carrier. Features of this type of ship may
include a superstructure (garage) section comprising multi-decks of light construction for
the additional carriage of new unladen road vehicles.
1.12 PASSENGER SHIPS

The top of this range of ships are the Cruise Liners many of which are built in European
shipyards and this activity has been responsible for their survival since these yards can no
longer compete with the Far East in the production of run-of-the-mill cargo ships. European
know-how in the luxury hotel building industry is as much demanded for these vessels, as is
the normal run of naval architecture.
15
Sf-liP SALE AND PuRCf-IASE
Less luxurious passenger liners intended for the few remaining scheduled services are
designed with multi-decks (and superstructure multi-decks) specifically for the carriage of
more than 12 fare-paying passengers and where all of the passengers are accommodated
in cabins (berthed).
Other features may include one or more of the following:
The additional carriage of a limited amount of cargo in one or more holds.

The carriage of passengers in dormitory type accommodation.
Included in this category are:
Passenger Ferries which have one or more decks (and superstructure decks) specifically
for the carriage of more than 12 fare paying passengers and engaged on a regular scheduled
service (of relatively short duration), and where there is either no cabin accommodation for
the passengers (unberthed) or not all of the passengers are accommodated in cabins where
cabins are provided (berthed or unberthed).
General Cargo/Passenger Ferries which have the same function as a Passenger Ferry but
with one or more holds for the additional carriage of general cargo (the cargo handling mode
for which is lift on/lift off).
Vehicle Passenger Ferries have a similar function to Passenger Ferries but with one or
more cargo decks for the additional carriage of passenger and freight road vehicles (the
cargo handling mode for which is roll on/roll off, and where the vehicles belonging to the
passengers are driven on/driven off by the passengers themselves).
Features may include the additional carriage of a limited amount of other types of ro-ro cargo
and the alternative (out of season) service mode of cruising.
TrainNehicle/Passenger Ferries have a similar function to a Vehicle Passenger Ferry but

with a separate (or the only) cargo deck fitted with fixed rails for the simultaneous carriage of
passenger/freight railway vehicles (the cargo handling mode for which is roll on/roll off).
1.13 MISCELLANEOUS
Vehicle Carriers are designed with hull/superstructure multi-decks of light construction
specifically for the carriage of new unladen road vehicles. The cargo-handling mode is roll
on/roll off. Features may include certain deck strengthening for the simultaneous carriage of
heavier cargo and the alternative carriage of other (specified) types of cargo. Vehicle carriers
may be referred to as Dedicated (or Pure) Car Carriers (DCCs or PCCs) or Dedicated or Pure
Car and Truck Carriers (DCTCs or PCTCs)
Livestock Carriers are designed with hull/superstructure multi-deck pens and sanitation
arrangements specifically for the carriage of livestock. The cargo-handling mode is such that
livestock is walked on and walked off, via ramps, to and from containment areas.
Livestock carriers are vitally important to Islamic countries whose faith demands that animals
have to be slaughtered according to strict codes close to the point of consumption.
Fishing Vessels designed for fishing operations which include Trawlers, Factory ships, Live
Fish carriers. Whale catchers and Whale Factory ships are still occasionally encountered
despite the international conventions restricting the killing of whales.
Offshore Vessels which include the following:
Supply ships designed with a weather deck cargo space specifically for the carriage of
stores and cargo to offshore oil and gas exploration/production installations.
16
THE SHIP
Support ships which are ofsimilardesign to support ships but are fitted for support activities
which include well stimulation, pipeline/cable trencher support, well maintenance, search
and rescue. Additional activities may include anchor handling, fire fighting, oil dispersal,
standby-safety, etc.
Drilling ships for offshore oil/gas drilling operations.
Pipe-laying ships for pipe laying/repair operations associated with offshore oil/gas
production.
Offshore well-production ships designed for the extraction, processing and storage (in
integral tanks) of oil from offshore wells.
Tugs are designed for the towing (and pushing) of ships, non self-propelled units, or other
floating structures. Additional activities may include salvage, fire-fighting, ice-breaking, oil
dispersal, etc.
Some pusher tugs are designed for the pushing of barges and pontoons, widely used in such
rivers as the Rhine (Germany) and the Mississippi (USA).
Dredgers are designed for the raising of spoil from the sea-bed by means of a cutter suction,
grab, bucket or ladder with the spoil then deposited into its cargo space or the cargo space
of another ship (or non self-propelled barge unit) alongside, for subsequent discharge
elsewhere.
Many dredgers are employed for the purpose of maintaining or deepening ports and their
approaches or deepening canals. Others are used for the specific purpose of collection of
sea-bed sand and stones for use as building or land reclamation material.
Hopper dredgers have a similar function to a dredger but are arranged so that the spoil
is deposited into hoppers within the ship for subsequent discharge elsewhere through the
bottom of the ship by means of doors/valves or by means of a split hull separation. Hopper
ships are used to support dredgers by carrying dredged spoil or other waste material in
hoppers within the ship and its subsequent discharge through the bottom of the ship by
means of doors/valves or by means of split hull separation.
Sludge carriers carry liquid waste (sludge) in integral tanks for subsequent discharge through
the bottom of the ship by means of valves.
Incinerator ships are designed for the burning of toxic waste at sea but they are now being
withdrawn from service in most areas due to the environmental concerns with emissions.
Barges are non self-propelled units designed for the carriage of cargo in holds/tanks. The
units are designed to be towed or pushed (Tug or Pusher Tug) or may be moored for the
purpose of storing cargo.
Types of barges include general cargo (often called "lighters"), container, bulk liquid and
hopper designs. Each of these is used for a specific purpose as their names imply.
Landing Craft are designed to run on to a beach or shore ramp prior to loading/unloading of
various types of cargo.
The cargo handling mode is roll on/roll off from the single cargo deck by way of a bow ramp
to the shore.
Other features may include the carriage of liquid cargo in under deck tanks, deck pens for the
carriage of livestock and an additional roll on/roll off facility by way of a stern ramp.
Deck Cargo Ships are designed with a weather deck cargo space only for the carriage of
various types of (non perishable) cargo.
17
Sr~IP SALE AND PuRCHASE
The cargo handling mode may be lift on/lift off and/or roll on/roll off by way of a deck ramp.
They may be strengthened for the carriage of heavy cargo and for the carriage of large/
awkward cargo.
Semi-Submersible Cargo Ships are deck cargo ships with the additional handling mode of
float on/float off for the carriage of floating cargo. These ships have an array of ballast tanks
and heavy-duty pumps.
Heavy Lift Cargo Ships are designed specifically for the lifting and carriage of heavy and/or
large/awkward cargo in a cargo space below the weather deck (or on strengthened weather
deck covers). The cargo-handling mode is lift on/lift off.
Features may include one or more of the following:
The additional cargo handling mode of roll on/roll off/to/from the cargo space by way of a
stern/door ramp.
A weather deck linkspan/hydraulic roadway arrangement and lift to the cargo space
below the weather deck.
Semi-Submersible Heavy Lift Cargo Ships have the additional cargo mode of float in/float
out (or float on/float off from the weather deck covers) for the carriage of floating cargo.
Barge Carriers are designed with holds or decks specifically for the carriage of barges
(lighters). Such vessels are often referred to as LASH (Lighter Aboard Ship) ships or
BACAT (Barge Aboard Catamaran)
Barges can be either hoisted at the stern and stowed in the holds or on the weather deck by
way of a gantry crane or can also be hoisted by way of a stern elevator and stowed on the
decks by wheeled transport or may be semi-submersible to allow the lighters to float on and
off.
1.14 TYPES OF MACHINERY

Main propulsion
Almost all merchant ships are now propelled by diesel engines which can best be described
as like giant truck engines. The smallest of these are fuelled by diesel oil (the very smallest
by gas-oil which is even lighter than diesel). The improved design of diesel engines which
began about half a century ago enabled such engines to accept heavier fuel-oils until the
present day when most large diesel engines can be run on oil that at one time was only
considered suitable for burning under the boilers of steam engines. The advantage of these
developments is that as a general rule the heavier (thicker) the oil the cheaper the cost.
A description ofthe main machinery is always part of the particulars of any ship being proposed
for sale and S & P Brokers quickly become familiar with the major manufacturers of marine
engines and in time will tend to have a view as to their relative good/bad points.
Engine power is usually referred to in terms of Brake Horsepower (BHP) and often this is
followed by its equivalent in kilowatts (kW). 1000 kW = approx 1400 bhp.
Ship particulars will also include reference to speed and fuel consumption and generally this
will refer to a number of tons of fuel-oil per day (usually detailing the grade of oil) and then,
in older ships, will refer to a much smaller quantity of diesel oil. The reason for this is that,
when burning heavy fuel oil, some machinery has a rather sluggish response to demands for
changes in revolutions and so diesel oil is used for manoeuvring in and out of port.
18
THE SHIP
The development in diesel engine technology has now advance to the extent that more
modern ships do not need to switch to diesel for manoeuvring, the machinery is now versatile
enough that everything can be done on heavy fuel oil.
In older ships diesel oil is also used for the generators which supply all the ship's needs
for electricity. Large ships have two or often three electricity generators because modern
vessels have such a heavy dependence on electric power, that lack of it would be intolerable.
More modern ships now have generators which run on the same heavy fuel oil as the main
engines.
Machinery is not confined to the engine room as, except for gearless bulk-carriers and
container ships, there is cargo handling equipment to be considered. Tankers require
cargo pumps as almost invariably liquid cargo is pumped IN to the ship by shore pumps
but the ship's pumps are used to pump the cargo OUT Such cargo pumps are of a capacity
that, regardless of the ship's size, she can discharge all her cargo well within the short time
allowed for this purpose. Cargo pumps are normally sited in a segregated pump-room which
is vital if they are electrically driven when there would otherwise be a fire risk.
Dry cargo ships may have a wide variety of cargo handling gear. The simplest, in general-
purpose ships, will be winches and derricks which in the past were driven by steam but now
electric motors are more usual. More sophisticated ships will have cargo cranes which can
operate more quickly than derricks.
Geared container ships may use cranes or the larger ones may have gantries which are a
miniature version of the shore gantries used in container ports.
Self-unloading bulk carriers will have a complex system of conveyors to move the cargo out
of the holds and on to the quay.
Other machinery on deck will include windlasses, the devices used to haul on mooring
cables, and/or hoist anchor chains. In larger ships there are passenger lifts (elevators) to
move quickly from deck to deck.
The propulsion machinery may be supplemented by bow-thrusters and sometimes also

stern-thrusters, small electrically driven propellers in athwartship tunnels used when
manoeuvring in port, allowing the ship to swing without needing any forward speed which
would otherwise be necessary to activate the rudder. These devices will often enable even
very large ships to berth without having to employ tugs.
Anti-pollution legislation increases the demand for specialist machinery, the most universal
being ballast pumps which are often designed to move dirty ballast water into oil/water
separators to ensure that no oil is ever pumped into the ocean.
Large ships, especially passenger liners, must have facilities for sewage treatment which
mimics the sewage disposal plants on shore.
1.15 GENERAL ARRANGEMENT PLANS

There are, of course, several different types of plans involved in the life of a ship but the one
which S & P Brokers are most likely to encounter is the General Arrangement Plan. As its name
implies, such a plan includes details of the hull shape, decks, holds, hatches and the main
equipment. It invariably includes a deadweight scale which shows the draft the ship will draw
at every stage from empty to fully laden. Study Appendix 2 which is a replica of a General
Arrangement Plan; an actual plan is, of course, much larger measuring as much as 2 metres
x 1 metre in some cases and contain much more information than shown in the appendix. The
real thing will include many dimensions and invariably has a deadweight scale which shows
the ship's draft at any deadweight. Students visiting ships will almost always see a framed
copy of the General Arrangement plan hung on the same level as the officers' cabins.
19
Si-IIP SALE AND PuRCHASE
1.16 SELF-ASSESSMENT AND TEST QUESTIONS

Attempt the following and check your answers from the text:
1. Define what is meant by:

(a) Deadweight tonnage
(b) Gross tonnage
(c) Net tonnage
2. How are grain and bale cubic capacity assessed?

3. Why are ships sold for scrap on their light displacement tonnage?
4. What is the usual cargo-handling system for tankers?
5. Why is this the usual method?
6. How is grain usually loaded/discharged?
7. What is meant by "Air Draft"?
8. What do the initials Ro-Ro stand for?
9. What is the size range of ULCCs?
10. What do the expressions "clean" and "dirty" mean in tanker terms?
11. Where did the "Exxon Valdez" spill her oil?
12. What cargo was the "Erika" carrying?
13. What has been the effect of the recent oil pollution disasters?
14. What is the customary way of referring to the size of container ships?
15. What is the size range of "Panamax" ships?
16. What is the largest size tanker in service today?
17. Where are many cruise liners now built?
18. Why is 8000 teus likely to be the largest size for the foreseeable future?
Having completed Chapter One, attempt the following and submit your essay to your Tutor.
Choose three different types of ship and outline those main characteristics of each type that
you would need if you intended proposing them to prospective buyers. Illustrate your answers
with sketches.
20
Chapter 2
SHIP REGISTRATION
2.1 THE NEED FOR REGISTRATION
Ships, like human beings, must have a name and in addition must also have an established
identity, port of registration and nationality before setting forth on the oceans of the world.
The owners must declare to the Registrar of Shipping, or other appropriate authority, their
interest according to the flag under which the vessel in question is intended to trade. Details
of the ship with plans and other data will be filed and when formalities are completed and
the ship's tonnage verified by a government surveyor the owners will receive a Certificate of
Registration. On this certificate will appear the official number allotted to the ship together with
her port of registry, details of tonnage and construction with the name(s) of her Owner(s). The
Registration Certificate is the most important of the ship's papers and must be kept aboard in
the custody of the Captain. Appendix 3 is an example of a British Certificate of Registry.
A ship on the oceans of the world is considered part of the territory of the country under
whose flag she sails. Her name must appear on both sides of her bow and also at her stern
where the port of registry must also appear. Traditionally also the merchant marine flag of
the country of registration is flown at the stern. However, the certificate of registry is the only
acceptable evidence of identity and its production to persons at sea or ashore entitles those
on board to the protection and assistance from her country and its representatives. It follows
that even in time of war, provided she is not violating neutrality or trying to run a blockade she
is entitled to full protection under International Law and should be free from seizure or arrest.
A ship which is not officially registered and without identity papers would be regarded as
'stateless' and even liable to be regarded as a pirate ship, registration of merchant tonnage
being compulsory throughout the world. There may be exceptions in the case of small
coasters and fishing vessels which never venture out of territorial waters or small pleasure
boats in private ownership. These minor categories can be exempt from compulsory official
registration dependent on the laws of individual countries.
There is no conformity of qualification required for the bodies or persons who are entitled
to register ships under, and claim the protection of, a particular country. It follows that the
degree of control over shipowners and the conditions under which their ships trade differs in
severity from flag to flag. Not only does this apply to their civic and tax liabilities but also in
regard to manning levels, living conditions and general maintenance of the ships themselves.
The extremes lie between, on one hand, those flags whose only requirement is a modest
registration fee in return for a listing in the national register and the painting of the shipowner's
name on the office door of an attorney and on the other hand, the demands and regulations
of the traditional maritime nations.
Genuine maritime nations require that the Owners have a permanent place of business within
the national territory and also that none but nationals of the country under which the ship is
to be registered appear as owners.
Originally, as an example, none but British subjects were permitted to register the ownership of
merchant ships in their own names under the Red Ensign. Now, with the open borders of the
European Union, a citizen of any of the EU member countries may register under British Flag if
they so wish and have established an office in the UK. Nationals of other countries may share
in the ownership by investment in Limited Companies or other corporate bodies provided such
companies have their place of business in the territory where the ships are registered.
It is a tradition going back to the days of the merchant venturers that ownership of a British
ship is considered to be divided into 64 individual shares. In this manner merchants would
club together to finance a shipowning enterprise. It follows that a single person who owns an
21
Se!IP SALE AND PURCHASE
entire ship will be registered as the possessor of 64/64ths. As, however, it is almost invariable
for a British ship to be owned by a limited company the 64th rule is now hardly relevant
although reference to it may still be encountered. The port of registry may not be the same
as the business address of the Owners who may have their place of business anywhere
within the United Kingdom. In such cases the port of registry will probably be the one most
frequently used by the ship or alternatively a commercial port with a long maritime tradition.
Other maritime countries have their own rules, laws and traditions in connection with
registering ships. An S & P Broker will be expected to be an expert in such matters so that
the active practitioner in the S & P market must make him or her self well acquainted with the
regulations in the countries where clients, or potential clients, reside.
2.2 THE GROWTH OF 'OPEN' REGISTRIES

Traditional maritime nations have tended to impose stringent safety levels upon ships
registered under their flags. These include regulations as to the numbers as well as the
proficiency of all shipboard personnel. In many cases these regulations have been heavily
reinforced by powerful trades unions who also impose wage levels. Furthermore, many of
those same nations have a high rate of taxation so that the combination of these factors has
made registration under a traditional flag less popular.
Many years ago, a handful of countries established far less stringent maritime laws, little or
no taxation beyond the actual cost of ship registration and a nationality qualification which
demanded nothing more than a small brass plate on the entrance to an attorney's office. The
benefits of such legislation rendered trading under these flags beneficial to owners to such
an extent that they are now a major force in world shipping.
Some countries were so keen to establish a national merchant fleet that they went beyond simply
attracting registration and ensured preference for cargo being given to locally registered ships.
No matter how eager one may be to own and operate ships, the profit motive is of primary
importance and a Shipowner will naturally consider the incentives available when deciding
under which flag his vessel should trade to his greater advantage.
A problem always facing shipowners is the difference between the cost of living, and hence
wage levels, in one country as compared with another. Furthermore, high cost countries tend
to have powerful trades unions. To attract seafarers, a Shipowner in a high cost country will
be expected to match shore-based wages which will result in a wage bill far higher than that
of a low-cost country. Thus ships owned in high-cost countries become uncompetitive in
the international market of shipping business. The United States was among the earliest to
encounter this problem.
Since the early years of the 20th century there have been close links between the US and the
republic of Panama and thus the first open registry country to be placed with full international
legal recognition was that of Panama in the 1920s. The incentive was cheap labour and
in 1939 a treaty was signed between the United States and Panama whereby profits from
shipping were exempted from taxes which made it attractive for American owners to take
advantage offreedom of employment while obtaining tax benefits. Panama's neutrality during
time of war was an additional encouragement for shipowners, not only from the United States
but also world wide, to trade under the Panamanian flag.
Honduras was similarly attractive at that time being within the Western Hemisphere and
therefore considered safe for US investment. Over 100 vessels which were American
controlled traded under the Panamanian and Honduran flags during the second World War.
Liberia, a state in West Africa originally created in 1847 as a new homeland for freed American
slaves, was the third of the original trio of free flags. Liberia's close links with the USA made
it another country especially favoured by American Shipowners.
22
SHIP REGISTRATION
Because of the relaxed regulations and minimum taxation, these countries, and most of those
that followed their traditions became known as flags of convenience. They attracted many
Shipowners whose own national flag became uncompetitive due to regulation, taxation and
local wage levels. Unfortunately flags of convenience (FOCs) not only attracted genuinely
reliable Shipowners whose only motivation was remaining competitive, the relaxed attitude
of some FOC countries to safety regulations also attracted owners who had no compunction
about operating dangerously sub-standard ships. It became quite common for such Owners
to establish a separate limited company for each of their ships, thus making legal action
against them a hopeless task. The use of these flags by unscrupulous Owners has severely
damaged the reputation of flags of convenience.
A brief history of the growth of the open registry phenomenon will be found in Appendix 4.
2.3 THE CURRENT SCENE

The list of countries offering flag of convenience registration is now almost endless. In addition
to the original Panamanian, Honduran and Liberian flags one can now add:
Costa Rican, Cypriot, Haitian, Lebanese, Marshall Islands, Omani, San Marinese, Sierra
Leonian, Somalian, Vanuatuan and many more.
Inevitably the question is why have open registries grown so rapidly during the last five
decades? The reason is that open registries, following the pattern of Panama and Liberia,
who deliberately established laws to provide all the necessary fiscal incentives, encouraged
shipowners to register their vessels under their flags. More important, the incentives are
continuously being reviewed to suit the current market situation and thereby encourage
shipowners to register ships under these flags.
Some of these incentives are:

1. No taxes on profits; no fiscal control. Only tax is a subscription tax per net registered
ton.
2. No labour restrictions. Employment is global and therefore wage rates flexible.
3. Limited liability.
4. No political restrictions on freedom of trade
5. Very flexible corporate laws.
6. Easy financing because of simple mortgage laws.
7. No risk of political instability or nationalisation.
8. Minimum safety laws and regulations. In the past, lack of control and inability to enforce
safety standards was a key feature of open registries.
The growth of open registries, particularly Panama and Liberia was a direct result of the
policy of these countries to attract shipping investment. This, plus the overall global economic
growth in world trade, especially in the movement of bulk cargo, provided shipowners who
were non-nationalistic with a commercial incentive which the traditional maritime nations laws
did not.
2.4 THE POSITIVE AND NEGATIVE ELEMENTS OF FLAGS OF

CONVENIENCE (FOCs)
Shipping is probably the most international of all industries. A charterer seeking a ship to carry
his cargo places his business on a market which is so world-wide that economists describe it
as the nearest one can get to perfect competition.
23
Thus a ship with a low wages bill, little or zero taxation on income and a minimum of regulation
on its operations will be able to offer a substantially lower rate than a ship whose Owner
has to pay wages to match a high standard of living ashore, is taxed on profits as well as
contributing to social security benefits and has its operations dictated by government edict
plus trade union restrictions.
This prompts the question, why are not all ships registered under flags of convenience?
It has been said that:
"There are no bad flags, only bad shipowners"
and there is no doubt that many excellently maintained ships with full complements of
competent officers and crew are trading under flags of convenience. The sad fact remains,
however, that the relaxed control of many FOGs attract Owners of severely sub-standard
ships and even if were a fact that these are in the minority they have brought the whole range
of flags of convenience into disrepute.
Reaction against FOC ships comes in several forms. Some port authorities claim to distrust
tonnage measurements of FOC ships and demand either a local tonnage certificate to be
obtained which would cost the shipowner time as well as money, or alternatively the ship has
to pay an increased level of port dues.
Perhaps a greater resistance to flags of convenience comes from the trade unions. The
transport unions of most traditional maritime countries are affiliated to the International
Transport Workers Federation {ITF). The ITF is renowned for targeting ships with crews
from less developed countries whose wage levels matching those ashore are far lower than
those of industrialised countries. Such ships are almost always flying a flag of convenience
and the ITF demands that the owners sign wage agreements with their crew at a much higher
level. Until such an agreement is signed the ships is "blacked" very effectively because most
of the labour (dockers, tug crews etc) are in unions affiliated to the ITF so that the ship is
immobilised.
At government level, many countries now impose Port State Control. This expression arises
from the basis that, in an ideal world, the country of registration would impose Flag State
Control. The world is not ideal in this respect and so the object of Port State Control is for the
country at which the ship arrives to have the power to immobilise that ship if surveyors find
that levels of safety, seaworthiness and/or crew welfare fall below minimum standards. Such
a ship remains immobilised until the defects are put right. Most victims of such control tend to
be flying the most relaxed of the flags of convenience.
The FOC countries themselves have not been idle and several of the more reputable now
impose many of the safety measures imposed by the international conventions devised by
the International Maritime Organization {IMO); Liberia claims to be the leader among the
FOGs in this regard.
The IMO is a branch of the United Nations with its headquarters in London whose main
concerns are for seafarers' safety and restriction of marine pollution. These include the original
convention on Safety of Life at Sea {SOLAS), more recently agreement was reached on
the International Convention on Standards of Training, Certification and Watchkeeping
{ITCW) and the most recent has been the International Ship Management Code {ISM).
The IMO's activity in pollution prevention was the MARPOL convention which has since been
reinforced by various other pieces of legislation not the least of which was the enactment in
1990 by the United States of the Oil Pollution Act {OPA90) which introduced the double
hull requirement.
Despite measures taken to discourage registration under FOGs, there are more ships
registered under Liberian flag than any other, with Panamanian a close second. Cyprus,
24
SHIP R"GIST8ATION
whilst among the top ten flags of convenience, argues that it ensures strict compliance with
international safety conventions by all the ships on its register.
It is worthy of note that Greek shipowners were at one time among the largest users of flags
of convenience particularly during the time of military rule in that country. In more recent
years, with the return to democracy, the Greek government recognised that their nationals
were the world's most prolific shipowners and accordingly modified their fiscal regulations
radically. This has resulted in the Greek national flag being well up in the world's top ten
merchant fleets close behind Liberia and Panama.
2.5 THE RESPONSE BY TRADITIONAL MARITIME NATIONS

It will have been noted that in this Chapter the expression "Open Registries" was initially used
but then all further references were to Flags of Convenience; this is because there is another
form of open registry.
Some of the industrialised nations have not been idle in trying to retain national merchant
fleets despite the competition from FOGs. They have devised systems of registration which
retain the essential elements of such things as safety but with a more relaxed attitude to the
nationality of crews and the levels of taxation.
Countries like the United Kingdom are particularly well placed in this regard because some
overseas territories, such as Bermuda and Gibraltar, still retain colonial status. This enables
ships to register in such countries, fly the British merchant shipping flag (the Red Ensign)
but not be subject to United Kingdom financial and other restraints. In terms of complying
with international safety standards, such registrations are equal to those of the UK itself but
operating costs are considerably lower.
Closer to the UK mainland and probably unique are Britain's "Crown Dependencies". These
are the Channel Islands, Jersey, Guernsey, Alderney and Sark which are located off the
north-west coast of France and the Isle of Man in the Irish Sea equidistant from England,
Scotland and Ireland. These territories have self-governing status in all matters except
international relations and defence.
The Isle of Man has recently become particularly popular among British shipowners as a
means of "flagging out" but still retaining the British Flag; notable among such companies
is BP the major oil company. In many cases, the owners register their ships in the Isle of
Man but only contract with Manx companies for crew matters, retaining all other aspects of
ship management themselves. One typical fleet of British mini-bulk carriers switched to Isle
of Man flag and re-recruited most of the original crews. The Owners pointed out that simply
being able to close down the department that dealt with the crews' income tax, social security
payments and family allotments as well as saving the actual cost of social security payments
themselves was the difference between profit and loss for the fleet.
Perhaps because it has its colonies and dependencies, the United Kingdom has not yet
adopted a scheme similar to some other European countries which have followed a different
path, They have established "open registries" which enable ships to retain the national flag,
still adhere to international safety standards but avoid the restrictions as to the nationality of
the crew members. Norway, a traditional shipowning nation, has been particularly successful
with their Norwegian International Ship Register (NIS) which was launched in 1987 and has
had the effect of the Norwegian flag moving into the top ten merchant fleets of the world.
The European Commission had plans to establish a European Union register and flag but this
has not yet found great favour among shipowners.
Another attempt to make the national flag more acceptable has been the way several
European countries are tackling the problem of taxation. They have done this by introducing
a "tonnage tax" which is a low rate of tax based upon the size of the fleet regardless of
25
the income the ships generate. Tonnage tax systems already operate in the Netherlands,
Norway and Germany, is under serious consideration in Denmark and Finland and has
now come into force in the United Kingdom; experts predict that the introduction of this new
tax system will double the size of the UK merchant fleet. An additional dimension to the UK
tonnage tax is that shipowners electing to adopt the system must recruit one new trainee
every year for every 15 officers employed. This condition should also ensure a substantial
increase in the number of British seafarers.
2.6 SHIP REGISTRATION AND THE SHIP SALE AND PURCHASE BROKER
The services of an S & P Broker may well be required in assisting in or even taking a leading
part in arranging for a client's newly purchased ship to be registered under the flag of the
Buyer's choice. Intending practitioners in sale and purchase broking should, therefore, ensure
that they know to whom they apply and what will be required for registering a ship.
Total familiarity with the procedure for registering under the national flag of the Broker's own
country is an obvious essential. More difficult might be finding out how to arrange registration
under one of the FOGs and a broker's personal address book should include a contact for
all the likely flags that clients may seek to use. In most cases the first contact will be through
the Embassy, High Commission or Consulate of the country concerned, although a search
through the Internet could save much time.

1. Which was the first Flag of Convenience?
2. Why were FOGs especially popular with US owners?
3. What is bad about FOGs?
4. Which were the first three flags of convenience?
5. Which is now the largest?
6. Why do many Shipowners register under FOGs?
7. What is the name of the United Nations body concerned with safety?
Having completed Chapter Two attempt the following and submit your essay to your Tutor.
Take an imaginary ship-purchase client domiciled in a country of your choosing and write a
letter to him discussing the respective merits of registering under his national flag as compared
with those of an "open" register; conclude your letter with a recommendation.
N.B. The Institute's Qualifying Examinations test a candidate's ability to communicate

effectively as well as testing knowledge of the subject of the question. Occasionally this will
require the answer to be in the form of a letter, memo, report or other means of communication
and it is important to ensure that such instructions are properly followed.
26
Chapter 3
CLASSIFICATION
3.1 CLASSIFICATION SOCIETIES
The previous Chapter explained how a ship had to be registered in order to have an identity.
In addition, ships have to be classified because international convention demands that an
approved classification society must verify that the ship is in a sound seaworthy condition.
This is, of course, vital to a prospective buyer.
Almost every maritime country has its own Classification Society; inevitably they vary in quality
but those which reach an internationally agreed standard of reliability have this affirmed
by their being accepted for membership of an organisation known as the International
Association of Classification Societies (lACS). lACS is a corporate body based in London
which is recognised by the International Maritime Organization (IMO) the maritime arm of
the United Nations; lACS enjoys observer status at IMO meetings.
Members Symbol
ABS ftBS
Bureau Veritas BV
ccs ccs
DNV (Det Norske Veritas) DNV
GL (Germanischer Lloyd) GL
kldian Register of Shipping IRS
KR (Korean Register) KR
Lloyd's Register LR
Class NK (Nippon Kaiji Kyokai) NK
RINA RINA
Russian Maritime Register of Shipping RS
There are many more other organisations which go by the description "classification society"
and which range from small private companies to subsidised or governmental offshoots.
Classification societies have strong links with shipbuilders, marine underwriters and employ
naval architects, engineers and metallurgists. Increasingly they also have IT specialists who
can produce software programs for ship design, strength and stability calculations.
Many class societies are also delegated the task of surveying and issuing flag state certificates
but they do this as agents for the flag state concerned and not as direct contractors of the
shipowner.
The status of the society with which a ship is classified is a matter for careful consideration
by a prospective buyer and shipS & P Brokers need to be fully informed on this subject. It is
especially important to keep a watch on the shipping journals in order to note any changes in
lACS membership.
27
Although most classification societies are non-profit making they have to remain financially
viable which inevitably means some degree of competition among them to attract shipowners
to their register. One of the principal problems lACS has to deal with is ensuring that
competition amongst societies does not lead to a lowering of standards.
Recent catastrophic oil spills, which have arguably been due to the ship in question being
in a seriously sub-standard condition, have led to court action being taken against the
classification society involved. Affected parties, such as fishermen and holiday resorts claim
that the damage from the spill would not have occurred had the classification society not failed
in its duty to demand that defects should be put right in order for the ship to retain class.
In most countries ships are compelled by law to be classified by a recognised society for
the purposes of safety, insurance, etc. Several countries go so far as to sub-contract the
registration of the ship and the issuance of safety certificates to a classification society.
To understand the development of classification societies, a brief history of Lloyd's Register

provides a useful guide, Lloyds being the premier Classification Society in the world.
Shipowners, Shippers, Captains and Insurers were accustomed to meet in the early
Seventeenth Century in Edward Lloyd's Coffee House for the purpose of doing business.
Lloyd's Coffee House eventually became a formal society concerned with the insurance
of ships and their cargoes. From these beginnings emerged both Lloyds of London - the
insurance organisation -and eventually also Lloyds Register of Shipping. Although they both
sprang from the same roots they are now totally separate entities.
Incidentally, the enterprising Edward Lloyd has another claim to fame because, as early as
1694, he produced a newsletter entitled "Lioyds's News" which is reputed to be the second
oldest newspaper in existence. In 1734, the title changed to "Lloyd's List" and it is under this
banner that it has been published ever since.
Prior to 1760 there was no Register of vessels and because of marine casualties, it was
suggested that there should be a proper Register which would be acceptable to all interested
parties and that ships should be surveyed by experts in order to be listed in the register.
The first Register of Vessels was therefore produced in that year and was recognised as the
birth of Lloyd's Register of Shipping. Sadly, the 1760 Register is no longer in existence but
the 1764 Register can be viewed to this day.
Originally, the hulls were classed A E I 0 U according to the merit of their construction and
continuing soundness. Equipment on such vessels was described as G M or 8 which stood
for Good, Middling or Bad, and by examining the lists of vessels, an Underwriter could assess
the premiums he should charge in order to insure either a vessel or her cargo.
This system of grading existed until 1775 when equipment was then described as 1, 2 or 3,
and so, for the first time the expression "A 1 at Lloyd's" came into existence.
In 1797 a dispute over classification methods prompted Shipowners to publish their own book
which appeared in 1799 and remained a rival register until 1834 when a common problem
of finance brought about a reconciliation which resulted in the official formation of Lloyd's
Register of Shipping.
Over the years, the format of the Register has changed from the age of wood construction in
the 18th century to wood and iron ships in 1866 and the first all-welded vessel in 1920.
Similar changes have taken place in propulsion systems from sail only to sail and steam,
steam only fuelled by coal, steam fuelled by oil, steam turbines, and eventually the almost
universal adoption of diesel engines. Gas-turbines have been experimented with but gained
little popularity outside fast ferry services although a generation of gas-turbine powered super-
fast container ships are now well beyond the planning stage. Nuclear powered ships have
28
CLASSIFICA'lON
been built but their use has tended to be restricted to ice-breakers and warships. At least one
nuclear powered merchant ship was actually built but the capital cost was beyond commercial
limits and in any case many ports were too afraid of anything nuclear to accept them.
All classification societies publish their own register of ships that they have classified but
Lloyd's Register, which is currently published in four volumes, is unique in that it publishes
details of all ships over 100 tons regardless of the society with which they are classified.
Supplements are issued monthly giving an up date on all changes to the Register since
publication.
Appendix 5 is a copy of the guide to abbreviations with which every copy of Lloyd's Register
is supplied.
Appendix 6 contains the column headings in the Register in several languages.
Appendix 7 is a copy of a typical page from the LR and, for comparison, Appendices 8 and
9 are copies of pages from Germanischer Lloyd and the English edition of France's Bureau
Veritas Register respectively.
Lloyd's Register produces many other publications for the shipping industry and among those
which are particularly useful to S & P Brokers include:
List of Shipowners: This contains details of 40,000 Owners, Managers and Managing
Agents worldwide, providing details of their addresses, telephone, telex and fax numbers
together with brief but informative fleet details cross-referenced to the Register of Ships.
Maritime Guide: A unique collection of diverse maritime information, with sections covering
such items as port facilities, call signs, shipbuilders, shipbreakers, postal and communications
addresses and a gazetteer with maps.
Register of Offshore Units, Submersibles and Diving Systems: This contains sections
listing mobile drilling rigs, submersibles, selected work units and diving systems (where
classed with or certified by Lloyd's Register). Also details for owners of equipment in these
sectors.
Merchant Shipbuilding Returns: A quarterly statistical summary of world shipbuilding for

all self-propelled ships of 100 gross tonnage and above which are under construction or on
order. Tables include analyses by country of build, size, ship-type, registration and progress.
Annual Summary of Merchant Ships Completed: A statistical summary of world

shipbuilding based on the same criteria as the Merchant Shipbuilding Return, with tables
covering completions and launches by country of build, size ship-type and registration.
Casualty Return: An annual statistical summary which includes all merchant ships totally
lost or reported broken up during the calendar year, individual ships are also listed with brief
details of casualty or disposal. A further section lists ships sold for breaking up.
Shipyard Orders Weekly Report: A list of confirmed orders reported during the week
showing selected items of information. Also included are lists of reported cancellations and
completions.
Lloyd's Register is a non-profit distributing organisation, governed by a Board of Governors

and a General Committee with its Head Office in the City of London and many National
and Area Committees in different countries. Represented among the Committees are the
Corporation of Lloyd's, Underwriters, P&l Clubs together with specially elected members.
The Technical Committee comprises representatives of Shipbuilders, Marine Engineers,
Electrical Engineers, Steel Makers, Engine Builders, makers of the other component parts of
a modern ship and Government organisations.
29
The day-to-day affairs are controlled by a Management Committee chosen from the senior
members of its staff who co-ordinate the activities of some 4,500 employees in 120 countries.
The objective of all classification societies is, however, the same and that is to ensure
that those who gain their livelihood at sea, travel in ships as passengers or entrust their
merchandise to the care of a Shipowner shall have safe transit as far as is humanly possible.
It is equally important that underwriters shall be able to assess with reasonable accuracy the
risks involved against the hazards of maritime adventures and so provide adequate insurance
cover.
It follows that if these objectives are to be attained ships must be built and designed on a
sound basis to the highest techniques and specification according to the prevailing time of
construction. Furthermore, they must be maintained in first class condition throughout their
life span and should never be put to sea with defects or un-repaired damage which may affect
their class. Ballast arrangements and cargo stowage must never impair stability and a ship
must never sail with a greater weight than is permitted according to her tonnage mark.
Over the years international and national legislation has proliterated with the object of
improving safety standards but it is to Lloyd's Register of Shipping that credit is due for being
the first organisation to impose such rules. As far back as 1835, Lloyd's Load Line Rules
came into being for the express purpose of ensuring against overloading. This preceded by
41 years the Merchant Shipping Act of 1876 which Mr. Samuel Plimsoll steered through the
British Parliament and which made the marking of maximum load-line compulsory.
Ships are classed for a period of four or five years with their machinery and equipment on
the understanding that provided there is adequate maintenance, there should be no major
failures during the period considered safe for the vessel to ply its trade.
The main part of the Classification concerns the hull with the propulsion machinery, electrical
systems and other materials used in construction being taken into account.
For full Classification, a ship and its machinery should be built in accordance with the Society's
Rules, from materials from an approved steel works under the survey of one or more of the
Society's Surveyors.
For a new ship seeking classification, the plans must be submitted prior to commencement
of building and examined to ensure that they conform to the Society's Rules. The plans are
then used by the attending Surveyor to ensure that the vessel is built to the standard required
by the Classification Society and that after working tests all equipment and the vessel itself
comply with the Rules laid down. A similar close inspection is undertaken in the case of a ship
seeking to change its classification from one society to another; such a change of society is
not unusual when a ship changes ownership and the work will inevitably involve the S & P
Broker.
An example of new Rules being introduced came in April 2006, when members of lACS
introduced two sets of common structural Rules; one for tankers and one for bulk carriers over
150 m in length. These Rules were developed jointly by lACS members after consultation with
other interested parties. In effect all new ships (those that were contracted for after 1st April
2006) will be built to the same Rules regardless of which lACS member society is going to
accept them for classification.
In the case of Lloyds Register, the highest possible category is given to those ships which
are, in effect continuously surveyed whilst being built. Those ships 'built under Lloyds Special
Survey' will have a symbol similar to the Maltese Cross placed before the 1OOA 1 in the
register book (often referred to as "Plus 100A1" when spoken).
30
CLASSIFICATION
The precise explanation of the symbols in the Register which combine to make up the+ 1OOA 1
are:
+(the Maltese Cross) This distinguishing mark denotes that the ship was constructed
under the Society's special survey, in compliance with the
societies rules.
100 Character figure assigned to ships considered suitable for sea

going service.
A Character letter assigned to ships which have been constructed

or accepted into class in accordance with the Society's rules
and regulations and which are maintained in good and efficient
condition.
1 This character figure is assigned to:
(a) ships having on board in good and efficient condition,

anchoring and/or mooring equipment in accordance with the
Rules.
(b) ships classed for special service, for which no specific

anchoring and mooring Rules have been published, having
on board, in good and efficient condition, anchoring and/or
mooring equipment considered suitable and sufficient by the
Society for the particular service.
A similar system is employed by all the other major classification societies, using different
symbols.
The Rules require that certain items are inspected at prescribed intervals but all items must
have a major survey once every four or five years with annual surveys being mainly concerned
with the ability of the hull and deck to maintain a water tight 'envelope' to protect the cargo.
At regularly prescribed intervals the ships must enter dry-dock for the inspection of all
underwater parts including tail-shaft, rudders, propellers, side valves, etc. Alternatively, this
work (except for the tail-shaft} may be carried out by suitably qualified divers in which event
the inspection has to be conducted in an approved location.
With the rapid changes in technology, it follows that Rules are often revised and updated.
Suggested changes may come from industry or may be made by the Societies Surveyors
for consideration by the Technical Committee which represents all branches of industry.
The safety factor of any amendment is of prime consideration and a consultative exercise is
therefore undertaken to ensure that no Rule is introduced which would hazard the vessel or
require solutions which were beyond the means of the industry.
All the major Classification Societies now have all their data in computerised form so that
instant access to up-to-the-minute information is available to the Society's staff almost
anywhere in the world.
Societies' Rules have to embrace, in addition to ships, such things as floating docks, inland
waterway vessels, mobile and offshore units, submersibles, diving systems, yachts, small
craft and the carriage of all the commodities carried in bulk such as oils, liquid gas, ore, grain,
refrigerated stores, etc.
Should a vessel sustain damage of a serious nature, a Classification Society Surveyor

must inspect the vessel. He may insist upon certain repairs without which the ship's class
will be withdrawn. Alternatively he may make recommendations which usually demand that
certain repairs are carried out within a given period.
31
NB. The question of damage affecting class and recommendations by classification societies
will be referred to fully in the Chapter dealing with sale contracts.
Mention has been made of inspection every four years. The initial four year period can be
extended to five by carrying out a modified survey at the end of the four year period or an
Owner may opt to keep his vessel under continuous survey whereby instead of carrying out
a major survey once every four years, the vessel is examined incrementally throughout the
survey period.
An Owner is provided regularly with a computerised listing which indicates the survey situation
and what outstanding work is to be done or must be undertaken at the next major survey.
Classification societies now provide certificates for many other things besides ships including,
for example Containers and in the case of Lloyd's Register an initial approval scheme was
introduced in 1967 and the first type approval certificate was issued in 1968. Their Container
Certification scheme, which covers the approval of all types of containers including refrigerated
and tank containers for the carriage of liquid cargoes, is co-ordinated from the Croydon office
of Lloyd's Register Industrial Services.
3.2 OTHER FUNCTIONS OF CLASSIFICATION SOCIETIES

Most Classification societies have an International Conventions Department which
carries out statutory surveys exclusively on behalf of the government of the state where
the vessel is registered. In this regard there are about 120 governments assigning a variety
of certificates for compliance with International conventions and hence the title of this
department.
The purpose for which such departments are probably most used is concerned with the
International Convention on Load Lines, 1966 (which came into force in July 1968) and
almost all work concerned with the assignment of load lines is done by classification societies.
In general, the freeboard convention ensures that a ship is not overloaded, it provides a
watertight containment system and ensures that the vessel has an adequate margin of
reserve buoyancy. It also requires a suitable range of intact stability.
A load line certificate is issued for a period of five years and requires an annual survey of
hatches, ventilators, closing appliances, etc. For specialised type ships (bulk carriers and
tankers) the assigning authority must also be satisfied that the damage stability is satisfactory.
Refer back to Chapter 1 Diagram 1.1 to see the way the society appends its initials to the
Plimsoll mark.
Almost all certificates issued by classification societies are concerned with International
Conventions for the Safety of Life at Sea (SOLAS). There have been four SOLAS
Conventions, 1929, 1948, 1960 and 1974, each in turn updating and improving the safety
aspects, first of all for passenger vessels and later dry cargo ships and tankers.
Among the safety certificates issued by classification societies are:
Cargo Ship Safety Construction Certificate. Under the terms of the 1960 and 1974
Conventions, any cargo ship of 500 tons gross and over, egaged on international voyages
is required to be issued with a "Cargo Ship Safety Construction Certificate". Before this
can be issued a survey of the hull, machinery and equipment must be carried out in order
to ensure compliance with the requirements of the Conventions. About 80 countries have
authorised Classification Societies to undertake these surveys and issue the Certificate on
their behalf.
Cargo Ship Safety Equipment, Safety Radio Certificates, Survey of Radio and Radar
Installations. The 1960 and 1974 Conventions require that all cargo ships of 500 tons gross
32
CLASSIFICA110N
and over, engaged on international voyages be provided with a Cargo Ship Safety Equipment
Certificate.
Passenger Ship Safety Certificates. Many leading maritime nations also undertake the
initial and periodical inspection and survey of passenger ships for the issue of a Passenger
Ship Safety Certificate following compliance with the requirements of the 1974 SOLAS
Convention. Governmental administrations may authorise Classification Societies to conduct
these surveys on their behalf and issue certificates after a satisfactory report although this is
exceptional.
International Convention for the Prevention of Pollution from Ships, 1973, as modified
by the Protocol of 1978 relating thereto (MARPOL 73/78)
This Convention which came into being on 2nd October 1983 aims to minimise and eventually
to eliminate completely pollution of the seas. The Regulations are grouped in five Annexes
namely Oil, Noxious liquid substances in bulk, Harmful substances in packaged forms,
Sewage and Garbage.
All ships engaged in international trade are required to have on board the International
Pollution Prevention Certificate.
Chemical tankers and other ships engaged in the carriage of noxious liquid substances in bulk
must have an International Pollution Certificate for the Carriage of Noxious Liquid Substances
or for chemical tankers in order to comply with the IMO Code for the Construction and
Equipment of Ships Carrying Dangerous Chemicals in Bulk This code is mandatory and
requires thatthe design, construction, equipment and operation of ships carrying noxious liquid
substances and dangerous chemicals in bulk shall be such as to minimise the uncontrolled
discharge of the cargo into the sea.
The IMO Code for the Construction and Equipment of Ships Carrying Liquefied Gases
in Bulk is more commonly known as the (International) Gas Carrier Code, i.e. without the
word "liquefied" and it requires that the design, constructional features and equipment of new
ships shall be such as to minimise the risk to the ship, its crew and the environment having
regard to the nature of the products carried.
The ISPS Code

Or to give it its full name, the International Ship and Port Facilities Security Code. This is
a part of the SO LAS convention devised by the IMO as a response to concerns over security
and terrorism.
From a ship sale and purchase perspective, it must be noted that as with the ISM certificate
approval is given to the managing companies procedures and has nothing to do with the
construction or physical condition of the ship in question. If a ship is being sold then almost
certainly the ship management company and crew will also change and the International
Ship Security Certificate (ISSC) will have to be returned to the approving RSO. The new
shipowner will then have to re-apply to the same RSO for a new ISSC to be issued or if the flag
state has been changed to the RSO that has been approved by that particular Government.
However lack of history can cause a problem so it might be useful to have the background
knowledge of why the ISPS Code came into being.
The ISPS Code came into force on 1st July 2004. The code was very much a reaction to the
terrorist attacks on New York in September 2001 but it does include elements of two other
problems- piracy and stowaways- that have been of concern for many years in the shipping
industry.
As the full name suggests the ISPS code works on two levels- ships (covers all ships over
500 GT) and ports. Governments and maritime administrations must appoint Recognised
Security Organisations (RSOs) to certify the security arrangements that have been made
in ports, on ships and in the shore offices of shipping companies. Exactly what sort of
33
organisation can become an RSO is entirely at the discretion of national governments. Within
the UK, only the Maritime and Coastguard Agency (MCA) has the power to vet ships but
many flag states have delegated the work to classification societies.
To comply with the code, ships and ports have to be subjected to a risk assessment after
which a security plan is drawn up. The plan is then reviewed by the RSO and after a successful
inspection and audit of the port or ship, a certificate will be issued. After the coming into force
of the code, port states will be able to deny entry to any ship which does not have certificate,
as well as ships coming from ports which have not been certified as complying with the
code.
On a practical level both ports and ships will operate on a three-stage security alert with the
precautions taken dependant on the security threat assessed. This would mean that for the
most part both would operate at the lowest level until some intelligence received makes a
higher level desirable.
3.3 TONNAGE MEASUREMENT REGULATIONS

Classification Societies are also authorised by many governments to carry out tonnage
measurement surveys and issue Tonnage Certificates on their behalf.
The International Convention on Tonnage Measurement of Ships 1969 came into force on
the 18th July 1982, and is applicable to ships under the flag of contracting parties to this
Convention.
Certain administrations such as the canal companies have developed their own systems
of measurement based loosely upon one or more of the main systems of measurements.
Lloyd's Register is among the societies authorised to prepare and issue Suez and Panama
Canal Tonnage Certificates.
3.4 PRACTICAL APPLICATION FOR THE SALE AND PURCHASE BROKER

Each Classification Society issues and publishes its own register book and these are the
essential tools of the S & P Broker. For this reason, no Sale and Purchase office is complete
without possession of at least one register of a member of lACS.
Lloyd's Register is particularly useful because it contains details of all known self propelled
sea-going merchant ships in the world with a gross tonnage of 100 and above, whether they
are classed with Lloyd's or not.
Each Classification Society records ship details in its own individual format. Symbols vary
and some provide details which will not be found in other registers. What is important is that
the S & P Broker should be fully conversant with the layout and information available in the
register in his possession so that the details he requires can be obtained with speed and
accuracy.
The more information about a vessel the better for obtaining the interest of a prospective
client. Not all details will appear in a Classification Society Register; an obvious example
being the latest speed and consumption of a vessel. These can only be obtained from an
Owner's office and if required checked with log books aboard the ship. Ship plans can also
only be obtained from an Owner and these will usually be required should the prospect of a
sale become more serious.
34
CL.ASSIRCAllON
Initially, the following information is essential when placing a ship on the market for sale:
1. Type (ie Tanker, Bulk Carrier/Dry Cargo etc)

2. Deadweight
3. Year built
4. Shipbuilder's name including name and location of yard
5. Class/survey position
6. Number of decks/tanks
7. Type and number of holds/hatches (dry cargo ships only)
8. Number of derricks/cranes (dry cargo ships only)
9. Capacity (grain/bale/insulated/liquid cargo space/teus etc.)
10. Make and type of main engine
11. Horse power (BHP) of engine
12. Speed and consumption.
Most of the foregoing details can be obtained from Lloyd's Register which allows 7 columns
for each ship (look again at Appendices 6 and 7).
In the case of a ship to be sold for demolition, the following information is required by a scrap
yard:
1. Light displacement - this indicates the amount of scrap metal the ship contains. Light
displacement must be clearly stated in terms of long or metric tons.
2. Materials of working and spare propellers (i.e. bronze and iron).
3. If a spare propellor and/or tailshaft is included in the sale.
3.5 CLASSIFICATION SOCIETY RECORDS

It is rare for a vessel to be purchased for further trading without inspection of the records.
The records that are kept by the Classification Society provide a history of the ship since being
classed by that Society. Records of all the special surveys, notations and recommendations
will be noted and recorded by a prospective Buyer so that when the physical inspection of the
vessel occurs, any areas where recurring problems exist may be given special attention.
S & P Brokers are not expected to be qualified engineers, naval architects or technical men.
They do not therefore inspect ship records on behalf of their clients nor do they inspect ships
for the purpose of giving an expert opinion. It is part of their function to facilitate inspection of
records and ships on behalf of their clients and this they may do with the consent of a Seller.
Classification Societies will not authorise inspection of a ship's records without permission
from the Owner of the vessel. It is therefore part of an S & P Broker's function to arrange such
inspections when a request has been made.
If a Buyer does not have a person available to inspect records or a vessel, the S & P Broker
should be in a position to suggest the names of qualified consultants to act on behalf of
a Buyer. The Broker must however be careful to suggest names rather than recommend
any particular one for the obvious reason that should inspection of records or ship not be
carried out efficiently, to the detriment of his Principal, the Broker will not be laid open to any
negligence claims that might ensue which will then properly be directed at the consultant
concerned.
35
Classification Society registers and records play an important part in the process of buying
and selling ships. Students should, therefore, endeavour to study one or more registers in
order to understand the information they contain and where it can be found.

Attempt the following and check your answers from the text and/or appendices:
1. How does Lloyds Register book differ from other registers?

2. What does the expression "plus 100 A 1" mean?
3. What is the name of the Italian classification society
4. What is meant by GL against a ship's classification?
5. What is the nationality and abbreviation of Bureau Veritas?
6. What size must an ocean going self-propelled merchant ship be in order to appear in
today's Lloyd's Register?
7. Who may inspect the Classification Society's records prior to a ship being purchased?
Having completed Chapter Three attempt the following and submit your essay to your Tutor.
Imagine you are trying to obtain the interest of a prospective client in the purchase of a ship.
What information would you seek to obtain from a Classification Society register about the
ship in question and why?
36
Chapter 4
THE SHIP SALE (PART 1)

4.1 THE OFFER
This Chapter examines the terms of a firm offer to purchase a ship together with some of the
potential implications and problems.
There is no set pattern in putting forward an offer to purchase because this is dependent
upon the requirements of the individual Buyer and also on the particular ship which is to
be purchased. There are, however, certain features which any offer must contain and as
the eventual deal will be based upon one of the standard forms such as the Norwegian
Saleform, it is usual to follow the same logical sequence as in such a form. Standard
Saleforms will be dealt with in the next Chapter.
The vast majority of work carried out by S & P Brokers involves the sale of second
hand ships intended for further trading. As with any contract, there has to be an offer, a
consideration (the price to be paid for the ship) and an acceptance. In real life this will
involve negotiation - that is to say by offer and counter offer. These will continue until the
two parties to the deal, the Buyer and the Seller, are satisfied they have obtained the best
transaction for their particular interests on the prevailing market. The negotiations will then
usually conclude by reaching an agreement on principle terms "subject to contract details"
when it will normally be the task of the Seller's Broker to draft a written contract for approval
and eventual signature.
An S & P Broker (the Seller's Broker) appointed to sell a ship will circulate its details. At
one time these would have been the subject of particulars widely circulated by mail to a
comprehensive list of S & P Brokers and each Broker tended to have an easily identified
"particulars sheet". Mail has, however, been almost completely overtaken by electronic
communication. Telex was the first to replace the postal system but fax became more
convenient and now more widely than anything else is the use of e-mail which is proving to
be the ideal medium for "putting a ship on the market".
It is usual for the opening offer to be made by the Broker acting for the intending Buyer and
the offer will be based upon details which have been provided by the Seller's Broker.
When an offer is put forward, provided it is sufficiently interesting to the Seller, it will merit a
counter offer; it would be rare indeed for the first offer to be accepted outright. It is important
to bear in mind that, although one uses the expression "counter offer", legally each counter
offer is actually saying "I decline your offer and now make you the following firm offer". Even
if negotiations have reached the stage where, for convenience, the loose expression used
when making the counter offer is "accept except" it is still a fact that - legally - either party
can break off negotiations at any time.
Occasionally ships are sold by auction. This particularly occurs where possession of the ship
has been taken by an official body due to the financial failure of the Owner. At an auction,
the successful Buyer is usually the highest bidder and in such a transaction, Brokers are
not usually involved except, often, as advisers before the day of the auction.
Of course an S & P Broker's duty is always that of an adviser to his Principal and it should
at all times be his aim to obtain for his principal the best terms and price on any transaction
he must always take care not to place his own interests (i.e. his desire to conclude a deal)
before those of the Buyer or Seller for whom he acts. In this, flexibility, determination, integrity
and hard work are prime requisites for success.
37
SHIP SALE AND PuRCHASE'
Whatever the variations by which an offer is put forward, the basics of any firm offer remain
the same namely:
Name of the ship concerned

Reply time
Price
Place and time of delivery
Conditions of sale (e.g Saleform to be used)
There will be a substantial number of additional requirements depending on individual

circumstances and these must be studied and understood. Some of the main ones are set
out in the rest of this Chapter.
It is usual to have one Broker acting for the Buyer and one for the Seller. Occasionally there
may be a 'chain' involving two or more Brokers on one side or the other, each requiring a
share of the total commission which must be divided.
Very rarely a Broker is the sole intermediary between a Buyer and a Seller when his expertise
and impartiality will be fully tested.
4.2 THE STRUCTURE OF AN OFFER

Buyer's Name. When an offer to purchase is received a Seller needs to have some idea
with whom he is dealing. If the Buyer's name is well known and of good repute it is usually
an assurance that when the time comes there will be no problem of payment. If, however, the
Buyer is not widely known or is new to the industry, the Buyer's Broker would be advised to
submit as much information as possible even including bank references, in order to ensure
that the offer he is putting forward is taken seriously. Reputations also, of course, extend
to Brokers and an offer put forward by a first class Broker is expected to be on behalf of a
reliable Principal thus a Broker should always acquire as much knowledge as possible of
the Principals for whom he or she is working. A reputation can be damaged very easily but
repairing it can take a very long time.
Reply Time. All offers must have a time limit. The Broker must therefore make quite sure how
long the authority he has been given extends. The limit of this authority must be expressed
without ambiguity or possible misinterpretation. Date and time must be clearly expressed.
Times differ from continent to continent and there are differing time zones within continents.
A Broker must therefore be clear as to when the authority he has been given by his Principal
expires and must then put forward the offer he has been given stating the day of the month and
the time indicating clearly at what place in the world the actual time of the day is applicable.
For example, atypical offer will be put forward- "Offer firm ............ for reply here 14.00 hours
BST London time Tuesday 25th June 2005". Always use the 24 hour clock in order to avoid
confusion between am and pm. Adding BST to London time may seem excessive but it
reminds the other party that British Summer Time is in operation. The same would apply
anywhere else in the world (e.g. North America) where a daylight saving system operates.
Do not use such loose expressions as "for prompt reply" or "for immediate reply"; they mean
different things to different people. One might be quite surprised at just how the law interprets
"immediate reply" and it should be avoided at all costs; so establish an exact time.
Price. Obviously the currency to be used for the vessel's purchase must be clearly stated
with the actual amount in figures and words. Today the currency adopted is almost always
expressed in United States Dollars when ships change hands in the international market. The
use of a common currency is useful in making comparisons between similar ships on the same
market by obviating the necessity for currency conversion with its attendant fluctuations.
38
THE SHIP SALE (PA8T 1)
Deposit. It is almost invariable for ten percent (10%) of the agreed purchase price to be
lodged by the Buyers in a joint interest bearing account in the names of the Sellers and the
Buyers (or their agents) to be released to the Sellers at time of delivery of the ship. Should
the Buyers wilfully default on the contract their deposit is forfeit to the Sellers.
Payment. It is usual for payment to be demanded either on delivery or within so many

"banking days" (usually three) of delivery. Strict deadlines for payment are essential when
such large sums are involved. The ten million dollars used in the example in this and the next
Chapter may be considered a relatively modest price. Even so, a day's delay in payment
even at moderate rates of interest could mean the loss of over $1200 per day (or almost a
dollar a minute!)
Commission. Unless stated otherwise, it is the Seller (i.e. the one who receives the payment)
who pays all the Brokers' commissions from the actual sale price. It is customary in second
hand ship sales for there to be one percent commission for the Buyer's Broker and one
percent for the Seller's. When taking authority to make a firm offer on behalf of the Buyer,
his Broker should clearly establish that the price being offered does include 1% commission.
Thus an offer of US$10,000,000 is put forward as "Price USD $10,000,000 less one percent
total commission".
The Seller's Broker, however, will also require a commission and therefore a further one
percent of the sale price is added and the offer put forward to his Principal will be: "Price US
$10,000,000 less two percent total commission". So that the Seller would receive a net price
for his ship of US $10,000,000 less US $200,000 =US $9,800,000.
Should there be more than two Brokers each Broker will, in turn, add his commission to that
put forward to him before passing on the offer to the next Broker or the Seller.
If, for example, there happened to be four Brokers in a deal (an unusual circumstance) the
firm offer would reach the Seller with 4% total commission. Occasionally a Seller may try to
resist such a "high" amount and try to force the Brokers to share commissions even to the
extent of agreeing a total percentage, letting the Brokers "fight it out among themselves"; only
the circumstances at the time will dictate what is eventually agreed.
The amount of commission in S & P deals is, in any case, not standard. Much will depend
on the circumstances and the price. Very often there is just as much if not more work in
concluding a five million dollar deal than one of twenty million plus.
On each deal, therefore, a Broker should consider what is reasonably compatible with the
time likely to be involved in reaching a successful conclusion as well as the price involved
when adding commission to the price put forward.
For most deals, one percent of the total purchase price for each Broker is considered the
norm but Brokers must always be prepared to make a sacrifice, if by so doing, the deal stands
a greater chance of success.
On occasions it is the Seller who states his price for a ship "net of commission". Either the
Broker must decide to try and arrange with the Seller an agreed fee or a figure must be
worked out, mathematically, to ensure what the price of the vessel must be in order to provide
the commission(s) required.
For example, if a ship is sold for say, USD $975,000 net of commission, the Broker, in order to
earn 1% of the final purchase price, must divide US $975,000 by 99 and add to the net price
as follows- US $975,000 + 99 = USD $9,848.48 + USD $975,000 = US $984,848.48. At this
price the Seller will receive his US $975,000 net of commission and the Broker will obtain 1%
provided Buyers and Sellers agree a contract price of US $984,848.48.
39
If more than 1% is required, the equation is different. For example, if 2% is required by

Brokers where the Seller has specified a final price of US $975,000 net of commission the
calculation is as follows:
US $975,000 + 98: US $9,948.97 X 2: US $19,897.94 +US $975,000: US $994,897.94.
Needless to say, if 3% commission is required 97 is divided into the net price and the quotient
is multiplied by 3, the product of which is added to US $975,000. If 4% the divisor is 96 and
the multiplier 4 and so on.
Fortunately such equations are rarely necessary but it is important to know how to calculate
should the occasion arise, as it sometimes does.
Occasionally the Buyer's Broker will find that the principal has already stipulated an address
commission which is retained by the Buyer, The most common reason for the inclusion
of an address commission is to satisfy the Buyer's internal accounting procedures where
the address commission becomes the income of the department in the Buyer's company
negotiating the sale.
4.3 INSPECTION AND INSPECTION OF RECORDS

Except for demolition, ships are rarely purchased without being inspected by the Buyer's
Superintendent Engineer or other qualified Surveyor. It would be like buying a house without
even a cursory inspection.
This inspection should not be confused with the inspection carried out by the ship's
Classification Society at the time of delivery. That inspection at one time always involved the
ship going into drydock but now it may be carried out by specially qualified divers. The full
implication of the clause covering this inspection will be covered in the next Chapter.
To clarify the difference between the two types of inspection the one carried out before
confirming the purchase is often referred to as "superficial inspection".
Because a ship purchase is a large capital transaction a Buyer will always seek to eliminate
margins of error and therefore when inspecting a ship he will wish to see as much as he can,
in the time available, in order to be sure that the vessel is in sound working order.
Ideally, for example, it is better to see the holds clean swept but this may not always be
possible. All depends upon the movements of the ship and a Seller would be reluctant to
hold up his vessel unless he had reasonable assurance that a positive deal was in prospect.
Similarly, the same situation applies to the inspection of the tanks in a tanker for which purpose
gas freeing would be required.
Occasionally a Buyer may request the opening up of closed areas such as ballast tanks, wing
tanks etc. to ensure against deterioration, but this is time consuming and the Seller may resist
such delay to his ship. Any desire for opening up must be clearly stated before inspection
commences so that there is no misunderstanding when the inspection begins.
Buyers often require for the inspection of log-books while aboard. This is a check on the
performance of the vessel so that the Inspector may check if the ship is performing as regards
speed and consumption according to how she is described. It is also a check on casualties
that may have occurred during recent voyages (e.g. hitting underwater objects or superficial
damage) which have not yet been notified to the Classification Society and thus not appear
in their records.
The place where it is proposed inspection should take place must be specified and since it is
in the interest of Buyers and Sellers to ascertain whether or not the ship is likely to be sold, it
is important to state a time within which inspection shall take place and a decision given.
40
4.3.1 Records Inspection

The inspection of Classification Society records is a part of routine S & P activity. Brokers
are not expected to be technical men or marine surveyors therefore they do not inspect
records and do not express opinions in the matter. It is part of their job, however, to arrange
for inspection of records at the Classification Society and this they will do on behalf of their
Principals. The Society will not, of course, permit such an inspection without written authority
from the Sellers.
An experienced Marine Superintendent or Surveyor will glean, from an inspection of a ship's

records at a Classification Society, a fairly accurate idea of her condition. He will note recurring
problems and areas of inherent vice.
Inspection of records usually takes place before ship inspection for the simple reason that
when the actual ship inspection takes place, the records will have revealed the parts of
the vessel where any trouble has been detected and where examination should be most
concentrated.
When arranging records inspection a Broker will first obtain permission from the Sellers of the
vessel, either direct or through their Broker. When permission has been granted, he will then
arrange with the relevant Classification Society the time and date when it is desired for the
records to be inspected and will give the name of the Inspector.
Should an S & P Broker be asked to nominate or recommend a surveyor to inspect a ship

or records on behalf of a Buyer great care is essential in case it should be found later that
the Inspector was negligent. A Broker should therefore nominate or recommend "without
guarantee".
4.3.2 Reply Time for Inspection of Vessel and Records

At one time it was not unusual for S & P negotiations to proceed "subject superficial inspection
and inspection of records". This could, therefore, mean that the Buyers and Sellers - and of
course their respective Brokers- would devote their time and expertise right up to completing
all the details of an intended sale, only to have the whole thing collapse when one or other
of the inspections took place. There was no redress; the Buyer would not even be obliged to
give reasons for refusing. It was the cause of severe frustration to Brokers at that time.
Fortunately, during recent years, Sellers have been able to refuse to negotiate on a "subject
inspection" basis. Thus the intending Buyer must carry out inspection of records and superficial
inspection of the ship itself and then make the offer on an outright basis.
Circumstances could change and if ever a pattern of negotiations "subject inspection" were
to return it will be vital to ensure that dates and times for the inspections to take place are
clearly specified together with a deadline for eventual decision to be declared by the Buyer.
It must be appreciated that, if a deal is concluded "subject to inspection of records and ship",
the Seller cannot deal with other Buyers in the meantime so that unambiguous time limits are
essential.
4.4 DELIVERY- WHERE AND WHEN?

The place and time of delivery must be clearly indicated before agreement can be reached on
a ship sale. Obviously Buyers and Sellers will each wish delivery to take place at a port and
time most convenient to themselves compatible with the movements of the ship.
Once a deal is agreed, however, both parties will seek to expedite matters to their mutual
satisfaction and in any argument which may follow on this particular issue, commonsense will
hopefully be the prevailing factor.
41
It is clearly better for both parties if delivery takes place at a safe place which is accessible for
taking off and taking on a ship's crew. A safe berth alongside a quay or jetty is ideal for this
purpose and it is usually found more convenient if this can be arranged at the vessel's last
port of discharge. If dryclocking at delivery port has been agreed, then it must be ascertained
in advance that at such a port- or close by- there are drydocking facilities for this purpose.
Similarly facilities for diver's inspection must be ascertained if appropriate.
The date of delivery is important for the purpose of signing on a crew by the Buyer and making
the necessary arrangements for transfer by the Seller such as arranging (often referred to
as "stemming") dry-dock if such is agreed. There are also the numerous other arrangements
which must be made in advance which include banking, insurance, documentation, registration
and classification amongst others.
The Buyer will usually have placed a deposit on the vessel he intended to purchase and
in the event that the vessel cannot be ready for some reason beyond Seller's control, it is
only right that the Buyer should have the option to cancel the deal. Such a contingency
might be occasioned by an actual or constructive total loss of the ship, in which case the
Buyer will require the return of his deposit, plus accrued interest, and it is for this purpose
that a cancelling date for completion of the sale should be incorporated. Having inspected
and accepted the vessel and placed a deposit with the clear intention of a purchase, the
Buyer may not wish to lose the ship, if for example, she was delayed in reaching her port
of destination for some reason. The Broker acting on behalf of the Buyer should therefore
make it clear that the cancelling date of the contract is "in Buyer's option". This means that
should the vessel miss her cancelling date, the sale may still be maintained by the Buyer,
if it is in his interests, and if he feels there is a reasonable assurance that delivery can
take place without undue further delay. This situation is clearly covered in the Norwegian
Saleform 1993 which is dealt with in the next Chapter. The cancelling date is essentially
an option, the contract is not automatically cancelled if the ship is later than her cancelling
date.
4.5 DRY-DOCKING OR DIVER'S INSPECTION

The full implications of the clause covering the inspection at time of delivery will be referred
to in the next Chapter. Suffice it to say for the moment that it is an important clause of most
S & P contracts, ensuring as it does that the vessel is in full compliance with Classification
rules.
The only occasion where such a clause would be omitted would be when a ship is sold "as
is, where is" which means in effect "there lies the ship - take her exactly as she is". Also
excluded from dry-docking are ships sold for demolition.
The purpose of the dry-docking clause is to enable the parts of the vessel below the water
line to be inspected. If such parts are damaged so as to affect the vessel's class, they must
be put right by the Seller to the Classification Society's satisfaction. It is quite usual now for
the underwater parts to be inspected by the Classification Societies using specially qualified
divers and this is a method frequently used especially where no dry-docks are available.
The next Chapter will consider, line-by-line, the Norwegian Sale Forms which are the forms
most commonly used today. They have been revised many times, the most recent is dated
1993 hence the abbreviation NSF93. Such is the conservatism of Shipowners, its immediate
predecessor- NSF87- is still quite widely used. S & P Brokers therefore need to know about
both forms because it may be many years yet before the NSF87 becomes obsolete.
There is no such document as a perfect sale contract. Buyers may well argue that the
contract placed before them by the Seller is too much the vendor's favour and vice versa
but experience has shown that the Norwegian Sale Form is as equitable as can be devised
and furthermore, it is known throughout the world which facilitates the drawing up of the final
contract for signature once agreement on terms has been reached.
42
THE S>-~IP SALE (PART 1)
4.6 WHAT IS INCLUDED IN THE PRICE?

Just what is included in the sale price causes possibly more argument than any other item
when a ship is delivered. It is therefore of prime importance to define as clearly as possible
what are the intentions of Buyers and Sellers in this respect. When a Buyer negotiates a deal
he expects everything belonging to the ship to be included in the sale price and will expect
all items on board the vessel and also any items ashore or on order if they are the ship's
property except, that is, for bunkers and lubricating oils which are dealt with separately.
Items involved may include a spare propeller or tail-shaft. During negotiations, the Broker
should do the utmost to establish clearly what is the ship's property. It is common for Sellers
to exclude from a sale certain items which may be regarded as fleet spares (if there are one
or more ships of the same class). Such items as gas bottles, tank cleaning machines as well
as things of a personal nature such as a gift from the ship's sponsor when she was launched,
pictures which decorate saloons, the ship's bell, crockery and cutlery bearing the Seller's flag
or name.
A Broker should anticipate such contingencies and endeavour to clarify what is intended by
Sellers, when handing over a vessel, in order to eliminate difficulties. On delivery, a Buyer will
expect to have aboard items of equipment which were aboard the vessel when inspected.
If there was, for example, a spare propeller and a spare tail-shaft at the time of inspection, he
will naturally expect to see them aboard on delivery. Occasionally however, ships have been
known to incur damage to an item of equipment such as a working propeller between the
time of inspection and delivery in which event the spare propeller is used while the damaged
propeller is taken ashore. A Seller could argue that the spare propeller is aboard the vessel,
being used to propel the ship, while the working propeller is ashore and damaged or possibly
condemned. It is important therefore to specify that the ship will be delivered with "a spare
propeller" rather than "the spare propeller" and such subtleties in negotiation should be noted
by aspiring S & P Brokers.
Normally all the vessel's manuals, plans, instruction books etc if not on board should be
handed over by the Sellers as soon as possible after delivery and the contract should stipulate
a period within which such delivery to be completed.
A list of radio and navigational aids whether on hire or not is also an essential part of the
negotiations to be itemised by the Sellers so that the Buyers, on delivery, will be fully aware
of what is ship's property and what of the items on hire may be retained under new contracts
between the Buyers and the lessors of the equipment. In these days of total dependence on
electronics for navigation it is vital for the Buyers to know whether or not the ship can sail as
soon as delivered.
4.7 BUNKERS AND LUBRICATING OILS

Ships at the time of delivery will have bunkers and unused lubricating oils and these must be
paid for in addition unless otherwise agreed. The exceptions to this may occur when a vessel
is sold on an outright basis "as is where is" or when purchased for demolition when bunkers
may be more of a liability than an asset.
When taking over bunkers at a port of delivery, there are three possible areas of dispute. The
first is the price, the second is the quantity remaining on board and the third is the quality (i.e.
whether useable or not).
Bunkers prices vary from port to port and a Buyer will naturally wish to limit as much as
possible the amount to be paid for bunkers remaining on board when a ship is delivered. If
a ship has taken on board bunkers at a port where they are expensive, it is understandable
that the Buyer will object to paying the same price if the delivery port is a place where bunkers
are cheap. Agreement must therefore be reached on the basis for determining the cost of
bunkers at the time of delivery. Prices of bunkers at any port in the world are readily obtainable
43
through a bunker broker, oil trader, oil company or the Internet and a Broker should always
be ready to assist in providing this information if called upon to do so. The current price for
bunkers at the port of delivery can therefore be established easily through the same sources
as referred above. The cost of lubricating oil can be obtained from any oil company although
a ship customarily contracts with only one supplier for lubricating oil and that company's price
may differ slightly from another's.
If, at the port of delivery, bunkers are expensive, Buyers may stipulate the maximum quantity
to be paid for with a view to having sufficient remaining on board for taking the ship to a port
where they are cheaper.
At the time of delivery, the skill of the Brokers in bringing their Principals to an amicable
agreement over bunkers can be invaluable. In case of difficulty, an impartial referee in the
form of an oil company representative may be sought in order to propose a way to settle the
matter. Occasionally, the Buyer may claim that bunkers contain quantities of sludge, in which
case the quality will be challenged and again, the decision of an impartial referee should
settle the matter to the satisfaction of both parties.
The Broker should, therefore, endeavour to establish which prices should prevail when
settlement for bunkers and lubricants is required at the time of delivery. It may seem that this
reference to bunker prices is unnecessarily detailed when one considers the cost of bunkers
in the context of the price of the ship itself. The fact remains that disputes over bunkers are
only too common.
4.8 BUYER'S CREW ON BOARD BEFORE DELIVERY

The time when a ship is to be delivered can be a nerve testing time for all parties involved in
the sale, including the Brokers! Buyers are anxious to place their crew aboard as soon as they
arrive at the delivery port but experience has shown that it is unwise to allow the Buyer's crew
to go aboard before the ship has been paid for and documents exchanged. The essence of
any contract, however, should always be goodwill and where possible a compromise should
be sought in respect of this difficulty.
The difficulty arises because the Buyers have a natural anxiety to ensure that items of
ship's property are not being taken ashore prior to handover while Sellers discourage any
interference in the running of the ship while it remains their property. Furthermore, in the
event of an accident occurring involving the Buyer's crew, litigation will ensue and the delivery
time for the official handing over could be delayed.
During the sale negotiations it is usual for agreement to be reached to allow a limited number
of members of the Buyer's crew aboard for the purposes of familiarisation but always at
Buyer's risk and expense.
4.9 SAME CONDITION AS WHEN INSPECTED

There are occasions when this stipulation can cause disputes, the difficulty being providing
the proof of what was the condition of the vessel when inspected. It could be, for example,
that the Buyer's surveyor may not have conducted an exhaustive inspection of the entire ship
and as a result may have missed certain items. Such an eventuality must lead to doubt as to
whether a particular defect was present on the day when the vessel was inspected.
Obviously a Seller will be anxious to sell his ship and therefore not go out of his way to point
out items which are not in perfect repair in which case, the burden of proving that the vessel
was in better condition upon inspection will fall upon the Buyer.
The wording "substantially the same condition as when inspected" is a common term and
gives the Buyer a degree of assurance that the ship that was inspected will be, except for
44
THE SHIP SALE (PAW 1)
fair wear and tear, the same ship as when delivered. Furthermore, the Seller is under an
obligation to maintain the vessel in the manner of a reasonably prudent Owner between the
date of inspection and the date of delivery. It is now not unusual for the Buyer's inspector to
take photographs or make a video record so that later arguments are avoided.
Subject Further Details Basis NSF1987 or NSF1993

No two ship sales are the same. Each has its own and often unforeseen complications which
test the skill and ingenuity of the Broker whose task it is to bring the two sides together in
harmony.
Reference has been made to the Norwegian Sale Forms as being used throughout the world
for ship sales and the words "basis NSF1987" (or "NSF1993") mean that the basic form will
be used, clause by clause and line by line but with amendments, additions and alterations
according to the negotiated ship sale terms agreed at the time of concluding the agreement.
4.10 ENGLISH LAW/ARBITRATION LONDON

Because of its long tradition as a centre of shipping activity, arbitration in London is a most
frequently accepted term and since London arbitrators are versed in English law, it follows
that these two conditions are complimentary to each other.
When the time comes to study the two forms in the next Chapter it will be seen that the later
(1993) form is far more specific about how the arbitration should be carried out.
Brokers must always strive to use their skill in such a way as to ensure disputes which lead
to arbitration do not occur. However, where large sums of money are involved and big issues
are at stake the final resort of going to law is, at times, inevitable.
4.11 WITH CLASS MAINTAINED FREE OF RECOMMENDATIONS AND FREE

OF AVERAGE DAMAGE AFFECTING CLASS
The above condition is commonly used in S & P and it is important to understand its full
meaning and implications.
These may be summarised as follows:

1. Nothing relating to surveys should be overdue. All surveys have a date and therefore all
must be up to date at the time of delivery.
2. Class surveys may have recommendations, outstandings or subject items of class. This
means that the classification surveyor has seen something which must be dealt with by
a certain date. If this recommendation is noted, even though it may not be due until after
delivery of the vessel, it must be settled at the time of delivery.
3. There are also appendix items which are not given a definite date. Buyers cannot claim
an appendix item from Sellers as these do not affect clean class whereas outstandings
do affect them.
4. Claims on insurance must be cleared. Average means anything which is to be claimed
against insurance underwriters. When the ship is sold, the new Owner cannot claim on
the underwriters of the previous owner therefore average items must be cleared before
the ship is delivered.
There are differing views on the interpretation and implementation of the conditions imposed
above and these will be considered more fully when examining the sale contract in the next
Chapter.
45
4.12 THE OFFER AND COUNTER OFFER

As previously mentioned, there is no standard form for putting forward offers but many Brokers
have a check-sheet or pro forma on their desk as an aide-memoire in order to ensure that no
items are neglected or overlooked.
Let us assume the m.v. "Georgina" is for sale and the Seller's Brokers have circularised
the vessel with an indicated price of US $10,250,000 with delivery UK/Continent during the
following July/August.
An attractive offer might read like this:
m.v. "Georgina" On behalf of Moya Shipping of New City Court, London (the first offer
may omit the intending Buyers name and simply say something like "first class Buyers to be
nominated") we are authorized to offer firm for reply, Tuesday, 7th July 2009 17.00 hours BST
London time basis details as set out in your email of 3rd July 2009 timed 16.15 hrs (or state
time and date and type of whatever communication was used to give details of the ship):
1. Price USD $19,750,000.- less 2% total commission this end.

2. Subject prompt inspection of the vessel with clean swept holds at Rotterdam within July
2009.
3. Subject approval of class records after inspection of same.
4. Buyers' reply on inspection of vessel and records within 3 working days after completion
of vessel inspection.
5. Delivery of the vessel, charter free, at a port in Antwerp/Hamburg range at a safe anchorage
or berth safely afloat within 30 days after signing of Memorandum of Agreement and
deposit lodged with cancelling date in Buyers' option.
6. Vessel to be delivered with class maintained, free of recommendations and free of
average damage. All Safety certificates to be up to date.
Vessel to be delivered in substantially the same condition as when inspected.
7. National and International Trading certificates to be unextended, clean and valid for a
minimum period of 6 months from the time of delivery.
List of all certificates to be provided.
8. Drydocking as per NSF 1993 (Clause 6a to apply)
9. Vessel to be delivered with everything belonging to her on board, ashore and on order
including all spare parts and spare equipment including spare propeller and tail-shaft,
radio/navaids not on hire (please itemize).
10. Purchase price to include bunkers and luboils as on board at time of delivery.
11. Vessel to be delivered free of all encumbrances/mortgages/maritime liens/taxes/claims
and all debts whatsoever.
12. Buyer's right to place two men on board at Buyer's risk and expense after contract signed,
deposit lodged and Buyer's signed indemnities provided.
13. Sellers to guarantee the vessel has not traded with/to Israel, Cuba, North Korean and is
not black-listed by the Central Boycott Office of the Arab League.
4.12.1 The First Counter Offer

On the assumption that this initial offer is of interest to the Sellers, a counter offer might take
the following form:-
46
On behalf of Freya Shipping of St. Mary Axe, London, we are authorised to counter offer on
the following terms and conditions to your offer of yesterday's date for reply here by 15.00
hours BST London time Thursday 9th July 2009.
1. Price US $20,250.00 less 1.5% total commission your end. (Note- the Sellers have
maintained their indicated price and only allowed 1. 5% commission from the purchase
price to Buyer's Broker. The fact that there is more than 1% commission at the Buyers'
end tends to indicate that either there is another Broker involved in the deal or that the
Buyers have included an address commission in their offer).
2. Subject superficial inspection only at first port of discharge Antwerp/Hamburg range
within July 2009. Buyers will of course have access to holds but as the vessel will be
discharging cargo, Owners cannot, in advance, confirm that holds will be clean swept.
Vessel's deck and engine logs will be made available to Buyers at time of inspection.
3. Agreed. (Note- Sellers have agreed inspection of class records).

4. Agreed except decision of acceptance/rejection of ship and records within 48 hours after
ship inspection. (Note- Sellers wish to speed up the decision on whether or not the ship
is accepted and have shortened the period for reply. Obviously a Seller must know with
minimum delay whether or not he has a deal for the purposes of finding another Buyer or
fixing the ship).
5. Agreed except delivery during August 2009 with 20th September 2009 cancelling.
6. Agreed except with the following amendments:-
After "average damage" to add the words "affecting class" (Note - Sellers have agreed
the wording as proposed by Buyers but require the condition that only claims against
underwriters which affect the vessel's class will be cleared at the time of delivery).
Sellers will provide list of up to date Safety Certificates.
To add the words "fair wear and tear excepted" after "the same condition as when
inspected". (Note - the addition inserted by Sellers can cause complications because of
the difficulty in proving what was the condition of the vessel at the time of inspection. The
Seller will be anxious to sell the ship and is under no obligation to point out items which
are not in a perfect state of repair and therefore the burden of proving that the vessel was
in a better condition upon inspection will fall upon the Buyer).
7. Agreed. Sellers will provide full list of National & International Trading Certificates with
validity dates.
8. Divers Inspection as per NSF 1993 (Clause 6b to apply). (Note - drydocking has
been declined and alternative of divers inspection offered which is now quite common
practice).
9. Agreed except Sellers will not replace spare propeller or spare tailshaft if used prior
to delivery. Radio/Navaids on hire will be advised soonest. (Note - the Seller is taking
the precaution of not being required to replace the spare propeller or spare tailshaft in
the event of the vessel hitting a submerged object prior to delivery, in which case the
working propeller and/or tai/shaft might be condemned necessitating the spares to be
fitted. Radio and Navaids are listed in the Owner's office and the Broker will obtain
details of which are on hire and which are owner's property as soon as the information is
forthcoming).
10. Remaining bunkers and unused lubricating oils to be paid for extra at current price at
port of delivery. (Note- it is normal for Sellers to require Buyers to pay extra for bunkers
in ship sales for further trading. As mentioned previously in this Chapter, the Broker can
expect some argument regarding prices of bunkers and luboi/s at the port of delivery,
also quantity and quality).
47
11. Agreed. (Note- the Sellers have agreed to clear all debts on the ship prior to delivery.
Proof of this must be given at the time of delivery in order to obtain transfer of flag from
one registry to another).
12. Buyers have the right to place two men on board at Buyer's risk and expense on arrival of
vessel at delivery port. (Note- refer to previous comments regarding Seller's reluctance
to have personnel other than ship's crew aboard prior to handing over. The risks are
obvious but Buyers also have fears of items which are ship's property being taken ashore.
Buyers also have an interest in familiarisation of the vessel by their crew and therefore
may wish to have an engineer aboard for the delivery voyage with this in mind).
13. Agreed.
14. Agreed. (Note - Brokers have a key role to play in the avoidance of disputes needing to
go to law. Arbitration can of course be convened at any centre of shipping throughout the
world which is acceptable to Buyers and Sellers).
15. For transfer of flag in Buyer's option, Buyers to state their registration documentation
requirements with which Sellers to do their utmost to comply.
It is emphasised that the above offer and counter offer is an example only of what might
happen during a negotiation for a ship purchase. The Brokers will continue their exchanges,
clause by clause and line by line until, hopefully, agreement is reached on terms following
which it will be their duty to draw up a sale contract for signature.
In the next Chapter, it will be assumed that following offers and counter offers on the above
outline basis, agreement has been reached on terms. It will then be the task of the Seller's
Broker to draw up a Memorandum of Agreement for signature, carefully observing every item
which has been agreed by both parties and recording it in the sale contract.
Whilst all offers and counter offer have to be authorised by the Principal concerned, the
process of submitting them in a manner most likely to result in a favourable reply can only
be perfected by practice and experience. By this means, the Broker builds up a reserve of
confidence essential for his or her ultimate success.

1. When a ship is sold for further trading who normally pays the Brokers' commissions?
2. What is meant by "Free of average damage affecting class"?
3. What is the purpose of the dry-dock or diver's inspection clause in a sale contract?
Having completed Chapter Four attempt the following and submit your essay to your Tutor.
A ship is placed in the open market for further trading.
Discuss and explain the usual procedures for reaching agreement on terms and the various
stages to be followed from inspection of records to final delivery of the ship to new Owners.
48
Chapter 5

5.1 INTRODUCTION
In the previous Chapter the procedure adopted by Sale and Purchase Brokers, whereby
offers and counter offers are exchanged, was examined. During the course of that Chapter,
it was pointed out that, when final agreement on terms is reached, it would normally be the
duty of the Seller's Broker to draw up a contract- or Memorandum of Agreement to use its
formal name -for signature by the two principals.
Now the perfect form of sale contract can rarely exist by reason of differing interests between
Sellers and Buyers. However, the ultimate desire of both parties, after having reached
agreement on terms, is for an efficient and smooth transfer of ownership. To this end the
careful preparation of a contract is vital
Experience has shown that the Norwegian Shipbrokers' Association's Memorandum of

Agreement for sale and purchase of ships is as equitable as can be devised. This document
was originally adopted by the Baltic and International Maritime Council (SIMCO) in 1956 and
during the past 10 years, it has been revised four times, in 1966, 1983, 1987 and 1993. The
Norwegian forms have the advantage of being the most widely known and extensively used
of all sale contracts and it is on these forms that this Chapter is based.
Shipping people, no matter how forward looking they may be, when it comes to standard forms
tend to be conservative in the extreme. For example, some dry cargo charter parties in current
use contain wording that is unchanged from forms devised in the nineteenth century. Thus,
although most practitioners in ship sale and purchase will agree that the 1993 form is a marked
improvement upon the 1987 version, the 1993 form has not yet entirely replaced the 1987.
In the examinations, as in real life, you will be expected to show a knowledge of where the two
forms differ although questions seeking detailed knowledge will usually allow the candidate to
choose and declare which form their answer is based upon.
Appendix 10 is a copy of Norwegian Saleform 1987 and Appendix 11 is a copy of Saleform

1993 by kind permission of the Norwegian Shipbrokers Association both of which should be
studied and compared one with the other. During the course of this Chapter students should
be prepared to make references to both these appendices as well as to the previous Chapter
so that adequate time should be allocated.
5.2 CONCLUDING THE SALE

It is now assumed that the Brokers involved in the offers and counter offers discussed in
Chapter Four finally reached agreement on terms.
A telex or e-mail of confirmation of the completion of the sale would be put forward by the
Seller's Broker as follows:
On behalf of Freya Shipping of St Mary Axe, London we are pleased to confirm the sale of
m. v "Georgina" to Moya Shipping of New City Court, London on the following terms and
conditions:
1. Price US $20,000,000 less 2% total commission your end. Deposit 10% within three
banking days of signing contract otherwise terms Saleform clause 2. Payment within
49
three banking days of delivery otherwise terms Saleform clause 3. (Note - Sellers agreed
to lower their price and have also agreed to allow 2% for the Buyers' Broker, presumably
for distribution with others. Brokers usually agree to 1% of the purchase price and so
presumably there is either an address commission past the Buyer's Broker or there is
another Broker who has to be covered. On commission however there is no hard and fast
rule, Brokers having to use their discretion and judgement at all times).
2. Subject superficial inspection only at Antwerp within July 2009. (Note- Sellers have now
nominated the port of inspection following more definite news of the vessel's movements
since the initial offer and counter offers were exchanged. Superficial inspection means
what it says and excludes opening up of engines but allows the viewing of any part of the
vessel within the interpretation of this term).
3. The class records have been accepted by Buyers after inspection. (Note - It is usual
to inspect class records before inspecting the vessel as they will indicate the vessel's
condition, trading history and technical problems under her present ownership and will
prove a useful guide as to what areas should be given particular attention when Buyer's
inspectors are aboard the vessel at the port of inspection).
4. Decision of acceptance after inspection of vessel afloat to be given to Sellers within
48 hours after completion of such afloat inspection. (Note particularly that, depending
upon market conditions, Sellers may insist on inspection of the vessel taking place before
proceeding with negotiations in which event Clauses 2, 3 & 4 of this offer would be
replaced with:
The Buyers have approved class records and accepted the vessel following superficial
inspection afloat at----. This sale is definite and outright subject only to the conditions
of this offer).
5. Delivery of the vessel at a safe berth in Antwerp within August 2009 with 1Oth September
2009 cancelling. (Note that Buyers have succeeded in shortening the cancelling date
by ten days. Bear in mind that the cancelling date, is an option which the Buyer may
exercise or not as he wishes. This could be catastrophic for the Seller whose ship may
simply have been held up through unforeseen delays under a preceding charter If the
market has deteriorated significantly between the time of signing the agreement and
the delivery date the Buyer may be very relieved if the ship is a few days late because
the clause, without any qualification, legally would allow the Buyer to 'walk away' from
the deal without penalty if the ship is so much as a day later than her cancelling date.
Prudent Sellers would insert additional wording in the cancelling clause calling upon
the Buyer to declare his intentions in advance if it appears that the ship is falling behind
schedule. Unforeseen delay can be equally catastrophic for the Buyer who may lose
profitable business through the ship being late. Of course if the delay was deliberate then
the Buyer would have a remedy in law against the Seller).
6. Dry-docking as per NSF 1987.
(Note - Inspection of parts below the summer loadline can be carried out by divers
specialising in this form of survey where a dry-dock is not available. We shall examine
the implications of the dry-dock clause later in this Chapter but it is important to note
that the vessel cannot be declined after dry-dock inspection the sale is definite and all
that is necessary is for any defective parts below the summer loadline made good to the
satisfaction of the Classification Surveyor).
7. Vessel to be delivered with everything belonging to her on board and ashore and on
order including spare propeller and spare tails-haft unless taken out of spare prior to
delivery Buyers to pay extra for remaining bunkers, unused lubricating oils only and pay
the current market price at the port of delivery. (Note - What is included in the price of
the vessel can be a source of argument and it is important to be as explicit as possible in
this matter. Clause 7 of both the NSF 1987 and NSF 1993 is as comprehensive as can
be devised in a sale contract but care must be taken over such items as are of individual
interest to Sellers such as items bearing a crest or name, a sponsor's gift, etc.
Bunkers and the cost of bunkers can always be a source of dispute and this will be
examined when the implications of Clause 7 are discussed further).
50
T'"IE SHIP SALE (PART 2)
8. Vessel to be delivered free of all encumbrances, mortgages, maritime liens, taxes, claims
and all debts whatsoever. (Note - This requirement is an essential benefit for Buyers,
and is covered adequately in Clause 9 of both Saleforms. The obligation for Sellers to
indemnify Buyers should there by any subsequent claims on the vessel after delivery
is an essential one. For example, a creditor of the Seller may have obtained a warrant
(a writ) to arrest the ship for a debt for which a maritime lien comes into existence. The
creditor may not yet have served the writ so that the Seller may be honestly unaware of
its existence. The fact is, however, that maritime liens are against the ship regardless of
any change of ownership after the issue of the warrant. The creditor is under no obligation
to advise the Shipowner that a warrant has been issued so that the first intimation of the
writ's existence may be the actual arrest of the ship. Full details of this procedure, known
as arrest in rem are discussed in TutorShip's law Chapters).
9. Vessel to be delivered with class maintained, free of recommendations, all continuous
survey cycles to be passed minimum three months from date of delivery. Free of average
damage affecting class and with all class and trading certificates clean and valid. (Note -
The meaning of this condition will be explained later in this Chapter when Saleforms are
examined line by line).
10. Vessel to be delivered in substantially the same condition as when inspected, fair wear
and tear excepted. (Note - Buyers have agreed to Seller's stipulation "fair wear and tear
excepted". The obvious difficulty here is in proving what was the condition of the vessel
at the time of inspection. The Buyer's surveyor may not have carried out an exhaustive
survey of the entire ship and there may have been items that are missed. The inclusion
of the words "fair wear and tear excepted" does not mean that when the agreement to
sell has been reached, the Seller can ignore normal maintenance. He remains under an
obligation to maintain the vessel as a responsible and prudent Owner from the date of
inspection until the date of delivery).
11. Subject contract details basis NSF 1987 (or NSF 1993) - English law and arbitration
London to apply (Note- Sellers and Buyers have agreed that the Norwegian Sa/eform
shall be the basis of their contract with additions and/or deletions according to that which
has been agreed in this confirmation).
12. Buyers have the right to place two men aboard at Buyer's risk and expense at Antwerp
immediately after contract signed and confirmation of deposit lodged in accordance
with contract and after signing usual indemnities. (Note - Sellers have agreed for
representatives to be placed aboard but only after the deposit is lodged. It is natural for
Sellers to be assured as much as possible and beyond reasonable doubt that the sale
is definite and there can be no better assurance than having a signed contract and a
deposit placed by the Buyers.
It is usual for the Buyers to obtain P&l cover indemnifying the Sellers for any damage
or injury the Buyer's representatives may do to themselves, to the vessel or the Seller's
officers crew and servants.
Unexpected eventualities may always occur but the essence of every contract is good
will. It is therefore a reasonable request from Buyers for two representatives to be placed
aboard the vessel for obvious reasons. Before official handover, persons, other than
Seller's crew are not usually welcome aboard but there has to be some give and take in
all transactions and in this instance Sellers have shown their willingness to co-operate).
13. Sellers guarantee that to the best of their knowledge the vessel is not black-listed by any
Arab country. (Note - Some Arab countries still boycott ships which have traded to Israel.
Such boycotting is of the ship not the Owner because it would otherwise be so easy for
a boycotted ship to be 'sold' to another company, still controlled by the original Owner.
Buyers need assurance in writing and in the contract that once the vessel has been taken
over there will be no restrictions as regards her trading limits).
On the assumption that this confirmation (usually referred to as a "recapitulation" or simply

"recap") sent by the Seller's Broker to the Buyer or his Broker has been confirmed as a
correct record of what was finally agreed between Buyers and Sellers. It will now be the task
of the Seller's Broker to draw up a contract or Memorandum of Agreement for signature.
51
With this in mind Appendices 10 & 11 will be examined in detail. Saleform 1987 will be used
as the basis and italics will be used to indicate where the Saleform 1993 is different.
Date. This should be the date on which agreement was reached on terms. That is to say
when finally offers and counter offers having been exchanged, all outstanding items were
finally confirmed by both parties. The deposit must be lodged within 3 banking days from the
date of the agreement being signed by both parties and therefore the Brokers drawing up
the contract must be flexible in pursuit of attending to the interests of their Principals and the
requirements of the sale in question.
Lines 1, 2 & 3, Names of the parties and the ship. These are straightforward containing the
full style and addresses of Buyers and Sellers and also the ship's name. The '93 form more
correctly says "agreed to sell" instead of "sold" and "agreed to buy" instead of "bought".
Lines 4 to 8, Details of the ship. Date of build, classification and name of builders can be
obtained from the classification register or from owners. Classification Society and Class in
the '93 form rather than simply "Classification". Events have even overtaken the '93 form
because register tonnage is now denoted as GT and NT
The '93 form then devotes lines 10 to 15 clarifying some words and phrases used in the
contract.
NB The ship's call sign can be obtained from the classification register or from Owners. Gross
and net tonnage are best obtained from the tonnage certificate in Owners' office.
Clause 1, Price. The price must be expressed stating currency and amount in figures and
words.
Clause 2, The deposit. The sale having been confirmed, it is important for the Seller to have
some kind of surety of the Buyer's intent. If, for example the ship is deviated from her course
and is unfixed in the belief that the ship is sold and there is no serious intention on the part
of the Buyer except to have an option on the vessel then the Seller could incur heavy costs.
A deposit is therefore a necessity since, with its establishment, the Seller is further assured
of the Buyer's seriousness and can make the necessary arrangements for the final handing
over of the vessel with despatch. The deposit can be lodged in any Bank but it is usually
placed in the Seller's bank so as to facilitate banking arrangements when the ship is delivered
although the Seller's Broker's bank is often used.
The deposit is to be lodged within three banking days from the signing of the contract by both
parties and any interest on the deposit shall be for Buyer's account. Should there be any fee
imposed by the bank for holding the deposit, it shall be borne equally by Buyers and Sellers.
The '93 form goes into a little more detail about the release of the deposit.
Clause 3, Payment. Obviously the Sellers require to receive the precise amount of purchase
money as agreed. Banks charge for their services and therefore Buyers must instruct their
Bankers to have the required amount of money available for payment to Seller's account as
and when required with any bank charges for the account of the Buyers. This accounts for
the wording "free of bank charges". When the vessel is ready for delivery official notice of
readiness is given to the Buyers by Sellers. The '93 form devotes a whole new clause (5) to
the question of notices and, incidentally, has already clarified that the word "written" includes
any method of transmitting the written word. Note also the '93 form includes the words "in
every respect physically ready for delivery" this is included because the looser wording
under the '87 form became the subject of a law case ("Aktion" 1987). Full payment within three
banking days after such notice is generally acceptable but such notice could, of course, be
expressed in other forms -for example "within three working days" or "three days, Sundays
and Bank Holidays excepted" but the S & P world has almost universally elected to use the
expression "banking days" which seldom if ever causes any ambiguity and "banking days are
defined in the '93 form.
52
Clause 4, Inspections. As has been mentioned, a ship purchased for further trading is rarely
negotiated without inspection of the ship and of her records. A ship purchase is a substantial
financial transaction and the future fortune of the Buyer may well depend on its outcome. It
is important therefore to eliminate risks and margins of error as far as possible. Classification
records can usually give a clear indication of the standard of maintenance, trading history and
the general condition of the ship since her maiden voyage up to the last survey. A Buyer will
note carefully recurring problems and will pay special attention to these when the physical
inspection of the vessel takes place. In the case we are studying- the "Georgina", the Buyers
have inspected records and have accepted them. The words in lines 22 and 23 of the '87 form
which read 'The Buyers shall have the right to inspect the vessel's classification records and
declare whether same are accepted or not within" will, therefore, have to be deleted.
Similarly, if the vessel had been accepted after inspection before contract signing we could
expect Clause 4 to read - "The Buyers have accepted the vessel's records and also the
vessel after inspection and the sale is therefore outright".
Sellers are usually reluctant to allow opening up of the main engine and it is natural that
Sellers should require compensation should Buyers hold up the vessel on account of delay
in inspection. Log-books for engine and deck are part of the items inspectors will wish to see.
In effect, they are the ship's diary and provide information of importance to a Buyer such as
speed and consumption and details of any incidents in which the ship has been involved.
It is incumbent on Buyers to inform Sellers whether or not the vessel is accepted within
48 hours after completion of inspection. Thereafter the sale becomes definite, if Buyers have
accepted the vessel, subject of course to other conditions of the contract.
Incidentally, there is no debate about the inspection, the Buyer does not have to give his
reasons for turning the ship down, he can just walk away from the deal at this stage, and
reclaim his deposit; thus there is a risk of a sale collapsing after all the negotiations have been
completed. The '93 form takes note of the growing tendency for negotiations only proceeding
once the inspections have taken place and thus provides for this situation in option (a). It
even allows for careless preparation of the form by stating that option (a) applies if the Broker
forgets to delete option (b).
Clause 5, Place and Time of delivery. Sellers and Buyers in the "Georgina" case having
agreed that delivery shall take place at Antwerp within August 2009, it is incumbent on Sellers
to keep Buyers posted about the vessel's itinerary and estimated time of dry-docking. The ship
will remain Seller's property until paid for and delivery usually takes place immediately after
the vessel has been taken out of dry-dock. Obviously, it is more convenient for all concerned
in the sale and han dover of the ship for delivery to be effected alongside a berth or quay but
in a busy port, this may not be possible.
As previously mentioned, it is in the interests of both parties to have a cancelling date in the
contract as a precaution lest the vessel, for circumstances beyond the control of Buyers and
Sellers, cannot be delivered within the time agreed. Such a circumstance could occur should
the vessel be declared a constructive total loss.
If delay in delivery might be occasioned by repairs not anticipated when the vessel entered
dry-dock or any other reason for which Sellers were not responsible then the cancelling and
delivery date could be re-negotiated, in which case an addendum to the Memorandum of
Agreement would be drawn up by the Brokers setting out the terms which had subsequently
been agreed.
The Broker's task is to attend always to the interests of his Principals and it is essential that
Buyers are kept fully apprised of the vessel's movements, estimated time of dry-docking and
delivery.
53
SrliP SALE AND PuRCHASE
The '93 form uses clause 5 to go into greater detail about notices and keeping Buyers informed
of the vessels itinerary and includes reference to the safety of the place of delivery.
Then there is a long (some Brokers say too long) clause 5(c) which seeks to reduce the fear
of the buyer simply "walking away" if the ship misses her cancelling date. There is, however,
no obligation upon the buyer to agree a new cancelling date if the ship is delayed so "walking
away" is still an option.
Clause 6, the Dry-docking (and diver's inspection) clause This clause should be studied
carefully in order to understand its implications. (In the past it has been a favourite subject
for examiners!) The purpose of the clause is to allow inspection of all external parts of the
vessel below the water- load-line. Note that the '93 form refers to "the deepest load-line"
in preference to the '87 form's reference to "summer load-fine". The inspector will be the
representative of the appropriate Classification Society and he will be accompanied by the
representatives of Buyers and Sellers.
Should there be any part of the vessel below the load-line found broken, damaged or defective,
so as to affect the vessel's clean certificate of class, it shall be made good by Sellers to the
Classification Society's satisfaction. While in dry-dock, Buyers, or the Classification Society's
representative, may have the tail-end shaft drawn. Again, should it be found defective or
condemned, it shall be made good at the Seller's expense to the Classification Society's
satisfaction without qualification.
All expenses incurred during dry-docking shall be for Buyer's account provided no parts of
the vessel below the Summer load-line are condemned or found defective as to affect the
vessel's clean certificate of class. If such parts are found defective so as to affect the vessel's
clean certificate of class then all expenses, including dry-dock dues and the Classification
Society's fees shall be for Seller's account.
The expenses for taking the vessel to the dry-dock and from the dry-dock to the place of
delivery shall be for Seller's account.
Clause 6 in the '93 form is far more detailed and students should carefully compare the way
the two forms deal with this subject. Clause 6(b) covers the option of a diver's inspection in
lieu of dry-docking. This is now more frequently adopted and it meant, under the '87 form, that
a written clause had to be added.
Clause 7, Spares, bunkers etc. It might seem incredible, when one considers the sale itself
involves millions of dollars, that this clause in the Memorandum of Agreement probably causes
more controversy than any other. Basically it concerns what is included in the purchase price
of the vessel and Brokers should take care when closing a deal to be as precise as possible
so as to avoid misunderstandings at a later stage in the transaction.
Obviously a Buyer expects all equipment aboard the vessel at the time of inspection to be
available on board at the time of delivery. If the vessel has a spare propeller and spare tail-
shaft he will expect these items to be available when he takes possession of the ship and
difficulties can be experienced if they are taken out of spare and used prior to delivery. Both
Saleforms exonerate Sellers from replacing spare parts including spare tail-end shaft(s) and/
or spare propeller(s) which are taken out of spare and used as replacement prior to delivery.
It is important for Brokers to establish what navigational equipment is ship's property and
what is on hire.
Spares on order are excluded from the sale in the printed wording of the Saleforms but often
their inclusion is negotiated by the Buyers. Any equipment belonging to the vessel at the
time of inspection that is not on board at the time of delivery, to be forwarded with forwarding
charges, if any, for Buyer's account.
Sellers are always reluctant to part with items of particular interest or value, such as sponsor's
gifts at the time of launching, works of art, pictures/paintings and any other articles bearing
the Seller's name such as crockery, plate, cutlery, linen etc. Should any of the latter be taken
54
THE SHIP SALE (PA~T 2)
ashore because of the reasons stated, Sellers are required to replace them with unmarked
items. Personal belongings are obviously excluded and also personal items such as clothing
which are part of the slop chest.
Remaining bunkers and unused lubricating oils must be paid for at the current market price
at the port of delivery. If there happens to be a large quantity of bunkers aboard at the time
of delivery and the price for bunkers at the port of delivery is expensive, Buyers may wish
to limit the quantity to be paid for with the intention of taking the vessel to a port where they
are cheaper. They may therefore require the wording to limit the quantity to an amount not
exceeding a specified number of tonnes but any such limitation should be unambiguously
agreed during negotiations.
If the quality is in doubt, a surveyor may be called in from an oil company to act as referee so
that Buyers cannot refuse to pay what has been agreed under the terms of the contract by
alleging that bunkers are unusable and little more than sludge.
Brokers should try to obtain in advance the approximate amount of bunkers and unused
lubricating oils to be paid for and agree the cost with their respective Principals.
Payment under this clause is to be effected at the same time as the purchase money is paid
and shall be in the same currency unless otherwise agreed.
Clause 8, Documentation and Clause 9, Encumbrances. A later Chapter of this course

will be devoted to documentation on delivery and students will be referred back to the
documentation clauses in both Saleforms.
For the time being it should be noted that as the "Georgina" is registered under the Panamanian
registry and it is the responsibility of Sellers to provide for the deletion of the vessel from the
Panamanian Registry and deliver the certificate to the Buyers.
The Sellers must provide, on delivery, a Bill of Sale stating that the vessel is free from all
encumbrances and maritime liens and any other debts whatsoever. The Bill of Sale must be
notarially attested and legalised by the Consul of the country in which the vessel will be
registered by the Buyers. Such a document presented in this manner is a surety of authenticity
and enables the Buyer to proceed on the oceans of the world in the knowledge that every
possible action has been taken to ensure that no debt appertaining to the vessel remain
uncleared.
The deposit is released in Seller's favour and the balance of the purchase money paid
together with items mentioned in Clause 7 of the contract. Classification certificates, plans
which are on board the vessel and other technical documentation are forwarded to Buyers
while log books may remain in Seller's possession although Buyers, should they so wish,
may take copies of log books.
Clause 10, Taxes etc. Taxes, fees and expenses incurred in registering the vessel under
Buyer's flag must, of course, be for Buyer's account while any such expenses incurred by
Sellers in closing the vessel from her Panamanian registry must be for Seller's account.
Clause 11, Condition on Delivery. Condition of the vessel at the time of delivery can
sometimes cause problems for the reasons already mentioned in this Chapter. It is difficult to
prove beyond reasonable doubt that the Buyer's surveyor conducted an exhaustive survey
when he surveyed the ship. He may well have missed certain items and a dispute may then
arise as to whether a particular matter was present at the time of inspection. The words
"fair wear and tear excepted" do, therefore, lend themselves to dispute. ("Fair wear" may be
relatively simple to envisage but what about "fair tear"?)
It is important to remember that the Seller is under no obligation to point out items which are
not in a perfect state of repair except, of course, damage or defects which affect class. Ship
sales are essentially governed by the principle of caveat emptor which is the legal phrase
which means "let the buyer beware"
55
SrliP SALE AND PuRcrlASE
Thus the efficiency of the original inspection and the burden of proving any serious differences
between condition at time of inspection and condition on delivery fall upon the Buyer.
Under the '87 Saleform, when a sale is definite and the ship has been accepted after
inspection, the Sellers must notify the Classification Society of any matter coming to their
knowledge, prior to delivery, which might lead to the withdrawal of her class or to a class
recommendation. In other words, the Sellers have an obligation to maintain the vessel in the
manner of a reasonably prudent Owner between the time of inspection and delivery. The
'93 form goes further in that it stipulates that the vessel must be "free of average damage
affecting class" whether or not the Seller knew about it and reported it to the Classification
Society. The term "inspection" is defined in this clause in the '93 form. The different wording
of clause 11 in the '93 Saleform is considered by many to be the most significant difference
between it and the earlier version.
Clause 12, Name/markings. On delivery Buyers must change the name of the vessel and
also any funnel markings, a fairly obvious obligation.
Clauses 13 and 14, Default by Buyers and/or Sellers. Compensation must be paid to
Sellers in the event of a default by Buyers and vice versa. Losses for such defaults can
be heavy and compensation must be paid together with interest which, in the '87 form, is
stipulated at a rate of 12% per annum but this is often deleted during negotiations, especially
at times of worldwide low interest rates (the '93 form simply states "with interest" without
specifying a rate). Brokers play an important part in avoiding disputes but however much care
may be taken, defaults occur which prove expensive and time consuming for all involved in
the transaction. Obviously, the rate of interest will vary according to current rates at the time
of the transaction.
The wording under Seller's Default in the '93 form is far more comprehensive including the
procedure if the ship should become 'unready' between time of giving notice and Buyers
taking delivery.
Clause 15 Buyers representatives. This clause which is so often the subject of a written
clause in the '87 version is self explanatory,
Clause 15 (Saleform'87) 16 (Saleform'93) Arbitration Brokers must always be on the alert

in trying to avoid arbitration or litigation, both of which are unproductive in time and expense.
Nevertheless it is necessary in every contract to make provision for any such possibility and
Clause 15 of Saleform'87 covers Arbitration in a general way. Because of an ancient maritime
tradition, the City of London is widely accepted as a place of arbitration and in accordance
with English law. If the parties to the contract cannot agree on a single Arbitrator, three shall be
appointed, one by each party to the dispute and the third by the London Maritime Arbitrators'
Association. In the Clause, there is provision lest one party to the dispute fails to appoint an
Arbitrator or if an Arbitrator, having been appointed, is unable by refusal or other reason to
act in the matter. The contract is subject to the law of the country agreed to as a place of
arbitration and the award rendered by the Arbitration Court is binding on the parties to the
dispute.
The '93 form goes into more detail giving three options, 16(a) sets out the procedure for
London arbitration, 16(b) covers the New York arbitration system while 16(c) is available if the
parties want arbitration other than in London or New York.
As mentioned previously, it is rare for a printed form to cover all eventualities and the addition
of written clauses tends to be the rule rather than the exception.
In the case of the "Georgina" sale, item 9 in the telex of confirmation (recap) is extra to
the provisions of Saleform'87 and therefore an extra clause is required to the contract.
The meaning of this clause (which would be numbered Clause 16 basis '87 form) can be
summarised as follows:
56
THE SHIP SALE (PA8T 2)
i) Nothing relating to surveys should be overdue. All surveys have a date and therefore all
must be up to date at the time of delivery.
ii) Class surveys may have recommendations, outstandings or subject items of class. This
means that the classification surveyor has seen something which must be dealt with by
a certain date. If this recommendation is noted even though it may not be due until after
delivery of the vessel is must be settled at the time of delivery. It may, of course, suit both
Buyer and Seller to agree a sum of money in lieu and for the work to be deferred for the
Buyer to carry out nearer the specified date.
iii) There are also appendix items which are not given a definite date. Buyers cannot claim
an appendix item from Sellers as these do not affect clean class whereas outstandings
do affect them.
iv) Claims on insurance must be cleared. Average means anything which is to be claimed
against Underwriters. When the ship is sold the new Owner cannot claim on the
Underwriter of the old Owner therefore average items must be cleared before the ship is
delivered.
Clause 17. In the recap telex it was agreed that Buyers could place two men aboard the
vessel with the usual indemnities after the contract signed and deposit has been lodged in
accordance with Clause 2 of the Memorandum of Agreement. A written clause covering this
point would not be needed if the '93 had been used as this is covered in Clause 15.
There are conflicting interests in this matter. Sellers are usually reluctant to allow Buyer's
crew aboard the vessel before payment in full has been effected. The reasons for reluctance
by the Sellers might include the possibility of pilferage, accidental or wanton damage
even interference in the running of the ship. More particularly if the '87 form is used, the
representatives may spend their time nosing around and bring to the Seller's attention any
defects they find which may have been missed at the time of inspection which places the
Sellers in the "now you know" position.
From the Buyers point of view, having agreed to purchase the vessel with everything included
in accordance with Clause 7 of the Memorandum of Agreement, have a natural desire to
ensure as far as is reasonably possible that minor items are not taken ashore by Seller's
crew which may be ship's property. A compromise is a reasonable solution to this problem
and two men placed aboard as representatives usually suffices. Their presence must be at
Buyer's risk and expense and it is understood that they will not interfere with the running or
performance of the ship while she remains Sellers' property. Sometimes, Buyers may wish an
Engineer to sail with the vessel during her final voyage to the delivery port but this can only
be effected with the full permission and approval of the Sellers.
Clause 18. Buyers will wish to ensure that the vessel they are buying is free to trade
worldwide - hence the insertion of a "no Arab boycott" clause.
The above notes, combined with those in the previous Chapter, although by no means
definitive, provide a useful guide with regard to the business of buying and selling ships.
There is no easy definition as to what it takes to be a successful Sale and Purchase Broker
but common sense and an ability to like people and to be liked by people, is an essential
attribute for the simple reason that the end result is that there will be more Principals who will
rely on his advice and expertise, the more strength to his elbow.
As has been mentioned previously in these notes, few if any ship sales are identical, each
one having its own unique requirements which necessitate separate clauses and each one
having its own problems and difficulties which need to be surmounted.
57
5.3 SIGNATURE ON CONTRACTS

Brokers may be called upon to sign contracts on behalf of their Principals in the same way
as chartering Brokers sign charter parties. In both cases, the Principles are the same. The
Broker must ensure that neither he nor his shipbroking company bear personal responsibility
and therefore certain usages must be adhered to. The first is that the parties to the sale
are named and described in the contract and are therefore clearly identifiable as Principals.
Secondly, Brokers signing sale contracts must always qualify their signature in a way which
makes it clear that they are in no way responsible for the execution of the contract. The
normal style is therefore as follows:
For and on behalf of ........................................................................ .

(Here spell out the name of Sellers or Buyers, as the case may be)
............................................................. (Name of shipbroker or firm)
signed by .......................................................................................... .
As Brokers only
Occasionally the old fashioned wording "as brokers and non-responsible mandataries" may
be used. Either way, there is no risk of the Broker being considered a party to the contract.
A further addition to the signature could be the manner in which the authority was given to
the Broker by either the Seller or Buyer. This could be expressed after the signature in the
following manner:
......................................................................... (signature)
As brokers only
By (here state letter, fax or other communication medium)
authority dated ............................. from ........................... .
The name of whoever granted the authority would be inserted in full in the appropriate place
beneath the Broker's signature.
5.4 OTHER SALE CONTRACT FORMS

As was mentioned at the beginning of this Chapter, the perfect sale contract can rarely exist
for the reason of the differing interests between Sellers and Buyers. It would be impossible to
present numerous sale contracts for study in this course, however Appendix 12 is a copy of
the "Nipponsale 1999" published by the Japan Shipping Exchange.
Students should study the Nipponsale and note where its terms differ from the Norwegian
forms.
5.5 TO SUM UP
In this Chapter, Three specimen sale forms have been presented for study. The essentials of
all such contracts are much the same and must be incorporated in any form of Memorandum
of Agreement, viz. time and place of delivery, price, inspection of class records and ship, dry-
docking, what is included in the sale and any other conditions mutually agreed.
58
5.6 BROKERS' COMMISSIONS

The Broker's commission is rarely inserted in a contract. A Broker is responsible for attending
to his own commission and must therefore ensure that this is recorded in writing and agreed
prior to the conclusion of a sale.
Ideally there should be a separate 'commission letter' signed by the Seller (who technically
pays all the commissions) but this is not often done today. However there is no point in
being trusting to the point of foolishness because the legitimate earning of commission is
why the Broker is there, he or she - like any other labourer- is 'worthy of his hire'. The
Brokers should ensure that there is ample written evidence (usually the exchange of telexes)
that commission is due. Alternatively FONASBA have devised a formal commission contract
which would cover the matter fully.
One may ask why does one not, therefore, include a commission clause on the M.o.A. as is
often done in charter parties and the only answer is that it has never been customary to do
so. So far as contracts drawn up under English law are concerned. The Contracts (Rights
of Third Parties) Act 1999 allows a Broker to sue in his own name if a brokerage clause is
included in a contract between two other parties (e.g. the Owner and the Charterer). Does
this mean that the custom will change and brokerage will appear in Sale contracts? Only time
will tell!

1. Who, unless otherwise agreed, pays the commission on a ship sale?

2. What is the purpose of the dry-docking clause in Saleform 87 and who pays the dry-
docking expenses?
3. A working propeller and existing tail-shaft are condemned after the delivery voyage. Does
the Seller of the vessel need to replace them on delivery of the vessel to a Buyer?
Having completed Chapter Five, attempt the following and submit your essay to your Tutor.
Using details of an imaginary ship, draft an opening firm offer on behalf of your Principal, the
Buyer, with an explanation of each term forming the offer.
59
Chapter 6
DEMOLITION
6.1 INTRODUCTION
A merchant ship may stay with one Owner or change ownership several times during its life
but that life is finite and at the end, there is only one sale left which is to the ship-breaker.
At one time it was reckoned that a ship's life was 20 years but this varies considerably for a
variety of reasons. The state of the chartering market is, of course, a major general influence.
Particular factors include the type of trade in which the ship has engaged, the care lavished
on the ship by her Owners; even the policy of the owner. To these reasons must now be added
the recent IMO convention (MARPOL 13G) on the phasing out of single hulled tankers
One must realise that, when a ship is sold for further trading, she could well commence to
trade in direct competition with the Seller. Thus some Owners may insist on selling a ship for
scrap even if she has several years of useful trading life left; in this way potential competition
is eliminated. The price for scrap will be much less than a price for further trading but the
Shipowner's tax accountant can often turn this to their advantage.
The scrap market is quite different from the market for further trading. Different contract
conditions, a completely different type of Buyer and quite different pitfalls for the unwary
Seller.
When sold for further trading, the ship will probably continue its way of life as before; only the
ownership changes. A ship sold for scrap will have been run down to the barest stipulations of
seaworthiness and with no concern at all for cargo-worthiness. Seaworthiness in this context
means that the ship must still be in good enough condition to retain her Class otherwise, if
she became a casualty on the way to the demolition yard, the insurers would not pay out.
There will be cases where a ship has been in a serious accident or has been laid up for so
long that her engines no longer work and she is certainly well out of Class. In such a case she
would have to be towed to the breaker's yard for which tugs will be hired. Before towage can
take place, a 'Towage Certificate' will have to be obtained from the Classification Society who
will demand that the ship be made 'sea safe' which involves all openings - doors, hatches,
portholes etc- to be welded shut to make them water-tight. This done, the ship will be able
to obtain specific insurance cover for her last voyage.
The actual arrangements for the towage may be made by the Sellers but it is quite common
for 'dead' ships to be sold 'as is, where is' leaving the Buyers to make the arrangements
which are usually carried out by specialist ship-delivery companies.
This purpose of Chapter is, therefore, to emphasise the specialist skills and knowledge that
an S & P Broker trading in the demolition market needs to acquire. The first necessity is to
obtain a mental picture of how ship-breaking is carried out.
6.2 THE SHIP-BREAKER'S WORK PLACE

Although most countries with a seaboard carry out ship-breaking to a greater or lesser degree
it is in the less developed countries where the major proportion of this industry is based.
In those countries the work is carried out very effectively but in a manner which can, at best,
be described as unsophisticated although, in some cases, crude in the extreme may be a
61
better description. Currently the most active ship-breaking areas are the Indian sub-continent,
South-East Asia and the Far East.
In many instances the breaker's premises are no more than a stretch of sea-shore with a
gently sloping beach. The ship arriving for breaking first anchors off this beach while the
transfer of ownership takes place. On completion of these formalities, most of the Seller's
crew leave the ship but a few remain because their duties are an essential part of the ultimate
delivery of the ship. This ultimate delivery consists of the ship being aimed at a given marker
on the shore and then driven- at considerable speed- straight at the beach. The speed is
necessary to ensure the ship's hull being firmly stranded because that is where all the work
on the ship takes place.
The Buyer then first removes anything which has a second-hand resale value. In addition
to items from the engine room such as electric generators, a ship has several objects for
which there is a ready second-hand market; visualise the yield from such places as the galley
(cookhouse) and crew accommodation.
Before the serious task of demolition can begin some precautions have to be taken. Tankers,
of course, have to be gas-freed and sludge removed so that work with cutting torches can
be safely carried out. It is a matter for negotiation whether the Seller or the Buyer does this
cleaning work. The same applies to fuel tanks on any ship and the question of remaining
bunkers is another area for decision during negotiations.
Then the ship is simply taken to pieces with flame-cutters. The ship's own cranes or derricks
may be retained as long as possible to handle the sections as they are cut out.
Some of the steel will go to steel-works where it is re-melted; even steel production from raw
materials needs a certain amount of scrap to help the molten steel to flow. However, much of
the ship's plating only has to be heated sufficiently to re-roll it for its re-use in other ways. The
advantage of using scrap steel is that the massive capital investment necessary for making
steel from raw materials is avoided. The particular value of steel from ships' plates is that the
quality is uniform which cannot be achieved from the use of miscellaneous scrap.
It will be seen that this method of ship-breaking requires very little capital investment in
sophisticated equipment and the fact that it is labour-intensive is an attraction in the countries
concerned. This in itself is beginning to give cause for concern because the minimum technical
skill required of the workers means that casualties are not uncommon. Furthermore the health
hazards for the workers themselves and the environment in general is exciting reaction from
such organisations as Greenpeace who are especially concerned about the dangers from
such things as oil residues and more especially the presence of asbestos in many ships
where it has been used for insulation of such items as steam pipes.
With the world becoming increasingly environment-conscious, the long-term future of current
methods of ship-breaking is not easy to predict but for the immediately foreseeable future that
is the main buying end of the demolition market.
6.3 THE BASIC PRINCIPLES OF A DEMOLITION CONTRACT

Before studying any contract in detail some fundamentals from the Buyer's viewpoint need
to be considered.
It is estimated that the average ship, in scrap terms, is comprised of the following:
86% scrap steel
7% cast iron
1% non-ferrous metals (e.g. brass, copper, bronze)
6% non-metallic materials (e.g. timber, plastics)
62
0EMOU110N
Ships are traded in the demolition market according to their actual weight of metal and it will
be recalled from Chapter One that this is referred to as the Light Displacement which is the
weight of the hull completely equipped plus the weight of her machinery, boilers, water in the
boilers and spare parts but excludes cargo, bunkers, provisions stores and other water.
Prices are quoted in US$ per light displacement ton (often shortened to "lightweight" or LOT).
Care must always be taken to check whether it is the ton of 2240 pounds, or the metric tonne
of 1000 kilograms. (The American "short ton" of 2000 pounds is seldom if ever used in this
context). Although the LOT is the way prices are quoted, the eventual contract of sale usually
quotes an agreed total (lumpsum) price as well as a price per light displacement ton.
Prudent Buyers will insist on some independent confirmation of the ship's light displacement
which can be checked from the original builder's plans or a letter from the builders. The same
information may also be gained from the ship's deadweight scale or trim stability booklet.
Enquiries should also be made to check from the ship's records whether any modifications
have been made which might affect her lightweight. Some ships have permanent ballast, the
weight of which should be deducted from the lightweight when calculating price.
As with any ship sale, confirming what is included in the sale is important. For example the
steel in a spare tail-shaft is of particularly good quality also one should check what material
any spare propeller is made of. The spare propeller is usually of cast iron but if, like the
working propeller, it is made of bronze this is a bonus because scrap bronze commands a
very high price. The nature and weight of any other spares, such as an anchor, need to be
checked.
6.4 SELECTING THE RIGHT BUYER

A primary concern from the Seller's point of view is the identity of the Buyer. In a recent listing
of ship-breakers there were over 100 names in India alone and it stands to reason that there
will be a wide variety of financial stability when such a large number is involved.
At the beginning of this Chapter the point was made that a ship is allowed to run down once
it has been decided to place her on the scrap market. Conversely a ship being sold for further
trading is usually in a reasonably seaworthy and cargo-worthy condition. In the unlikely event
of a sale for further trading collapsing at the last minute, due to default by the Buyer, the Seller
can continue to trade his ship until a new sale can be arranged. True, the Seller will have
incurred losses which may or may not be recompensed from the deposit or from legal action
against the defaulting Buyer.
Consider, however, the plight of a Seller of a ship for scrap, perhaps anchored off a remote
beach somewhere in Asia and the Buyer decides he has changed his mind. Such a Seller
would be very vulnerable to having to renegotiate the sale at a much lower price. That situation
was not unknown in the days before the demolition market became properly organised.
To defeat such a predicament it will be seen, when a demolition sale contract is examined,
that much of the cia using is concerned with making payment of the agreed price at the agreed
time as foolproof as possible.
The principle device in this context is the way that payment has to be arranged via a Letter
of Credit. The Buyer is obliged to open a Letter of Credit in a bank convenient to the Seller.
The two parties agree as to the documents which the Seller has to present to the bank at
the time of delivery of the ship in order to release the money. The Letter of Credit has to
be irrevocable. The only item over which the Seller has no control is that the cash is not
released until the Seller's bank receives confirmation from the Buyer's bank that delivery has
taken place although some contracts seek to overcome this problem. Unless the Letter of
Credit is established and the agreed deposit made within three banking days of the signing
of the contract, the Seller has the option to cancel the deal.
63
One hundred percent certainty is seldom achievable so that the reputation of the Buyer and
the Buyer's Broker is important. Even more vital is the task of the Broker representing the
Buyer to be sure of his Principal; it has already been stated that a reputation is easily damaged
but difficult to repair. In a busy market, top class Buyers will tend to have little difficulty in filling
their demolition berths and so have to retreat from the market for a time. Sellers will then have
to look to the less well-known Buyers and so the Seller and the Seller's Broker have to ensure
that the eventual contract contains no loopholes.
6.5 THE SALE CONTRACT

The Baltic and International Maritime Council (BIMCO) have produced a standard sale
contract for demolition with the codename "SALESCRAP 87" a copy of this will be found in
Appendix 13 which will be studied clause by clause.
Most of the major areas where there are a large number of ship-breakers have devised
their own standard form and as BIMCO is an international shipowners' association, one can
expect some clauses to be more favourable to the Shipowner (the Seller). Nevertheless the
SALESCRAP 87 form provides an excellent example for studying the structure of a sale form
for demolition as it covers all the main features clearly and in detail.
It will be seen that, in common with many BIMCO forms, the first part is in a "box" layout
containing all the facts relevant to the ship and the terms agreed, while Part II embodies the
clauses which govern the contract.
Study first, page one of the contract (Appendix 13) where it will be seen that boxes 1 to 15
identify the parties to the contract, the name of the ship being sold and some detail about its
main engine, the generators, spare propellers and spare tail shaft.
Box 18 is the all-important item, the price and the currency in which it is to be paid. The rest
of the boxes on that page deal with the deposit and the basic details about the Letter of Credit
with references to the clauses involved.
Page 2 of the contract (Appendix 13) Clauses 21-25 deal with the position of the ship and
her delivery including the all-important place of delivery with expected readiness and the
cancelling date. The remaining clauses cover documentation required, rates of interest in the
case of default by either party, arbitration and, of course, the signatures of the parties.
Refer now to page 3 (Appendix 13) where the first clause allows for more details of the ship,
if they are required, to be set out on the last page which also has space for listing any items
not included in the sale in addition to those mentioned in Clause 2.5.
Note especially (Clause 2.1) that unlike sales for further trading, it is not usual for the ship to
be inspected either at the time of negotiation or at time of delivery.
Again unlike sales for further trading where bunkers remaining on board tend to take on a
disproportionate amount of concern, bunkers become the Buyer's property. For the Buyer they
may be a useful source of fuel for the dismantling operation but they may also be something
of a nuisance.
Clause 2 also covers the removal of Seller's property bearing the Seller's flag or name as in
a sale for further trading. Unlike a sale for further trading, if, for example, the spare tail shaft
had to be installed between signing and delivery, the condemned shaft must remain on board.
It may be no further use for driving the ship but it is still a useful piece of high grade steel to
the breaker.
Clause 3 simply states how the light displacement has to be verified. Note that if the proof of
the lightweight differs from the originally agreed figure, the lumpsum price (Clause 3) shall be
64
DE\.10iJTJON
adjusted accordingly. This explains why on page 1 of the contract both the agreed lumpsum
and the price per lightweight are stated in box 8.
The deposit clause (No. 5) is substantially the same as such a clause in a sale for further
trading.
Study Clause 6 carefully. It deals with the mechanics of the Letter of Credit, the all-important
system of endeavouring to achieve a foolproof method of payment which seeks to be as fair
to the Seller as to the Buyer.
Full details of the way a Letter of Credit (often referred to as a Documentary Credit) are
dealt with in Tutorship's course for Shipping Business but the basics are that the Buyer gives
detailed instructions to his bank as to how payment shall be made. In Letter of Credit (L!C)
parlance this bank is called the Opening Bank and it will be seen from line 57 that this has
to be a "first class bank".
The opening bank then makes contact with a bank in the Seller's country which becomes
known as the Advising Bank. Line 59 states that this bank is to be "nominated by the Sellers"
but there is usually some mutual agreement between the parties because the opening bank
will prefer wherever possible to deal with its own branch office or its corresponding bank in
the Seller's country.
The instructions given by the Buyers to the opening bank which will, in turn be passed to the
advising bank will detail the documents which the Sellers have to present to the advising bank
in order to receive payment; these are set out in Clause 13.
It will be seen that safeguards for both parties are built into this system.
(a) The opening bank will not accept instructions from the Buyers unless there are adequate
funds to make the payment.
(b) The advising bank will not accept instructions unless satisfied that the opening bank is
indeed first class.
(c) The Sellers cannot collect the money until all the required documents are presented and
the ship has in fact reached the Buyers.
(d) The Buyers cannot withhold payment if all the requirements of the L!C have been
satisfied.
Note particularly that the clause calls for a Confirmed Irrevocable Letter of Credit.
"Confirmed" means that the advising bank undertakes (confirms) to pay the full amount when
all the requirements of the UC are satisfied even if the advising bank has not received the
funds from the opening bank.
"Irrevocable" means just what it says, the Buyers cannot change (revoke) the L!C in any way
once it has been opened except with the agreement of the Sellers.
Line 71 provides for an expiry date for the UC which will be the subject of negotiation between
the parties as the Seller will wish to ensure that if the ship is delayed and a new cancelling
date is agreed, the money will still be paid. The Buyer will try to keep this date a tight as
possible to reinforce the cancelling date and to ensure that the Buyer's funds are not "tied up"
any longer than necessary.
Clauses 7 & 8 deal with where the ship physically is at time of signing the contract and how
she intends to reach the place of delivery and Clause 9 covers the actual delivery. Note that
if the actual breaking berth (the stretch of beach in many cases) is not immediately available,
delivery as near as possible shall be considered as fulfilment of the contract. Study 9.2
carefully as it goes into detail on this point even to the extent of what happens if the Buyer
fails to nominate a waiting place.
65
SHIP SALE AND PuRCHASe
The cancelling date procedure set out in Clause 10, whilst still allowing the Buyer to cancel
if the ship is delayed, imposes the obligation upon the Buyer to declare that option as soon
as notification of delay is given or, in the alternative, to agree a new cancelling date. This
treatment of the cancelling date can be seen as being sympathetic towards the fact that a
ship run down preparatory to scrapping would be in dire straits if the Buyer was able to defer
cancelling until the last minute.
Clauses 11 & 12 deal with keeping the Buyers informed of the vessel's progress and with
actual notice of readiness to deliver which is tendered to the Sellers and to the Buyer's
bank (the Opening Bank). Take note that, in this sale form, a tanker would not be accepted
as ready until she is able to present a certificate from an independent competent authority
stating that her tanks are gas and sludge free so that men can safely work inside the tanks
with flame-cutting gear.
The documents required to release, to the Seller, the funds held by the Advising Bank in the
Letter of Credit are detailed in Clause 13. This particular saleform (Clause 13.2) ensures that
the Seller can demand payment even if the Buyer's bank (Opening Bank) fails to confirm
receipt of the notice of readiness.
Clause 14 endeavours to ensure that once the ship has been accepted by the Buyer, there
should be no argument about the ship's condition. A clause like Number 15 would be important
in a sale for further trading but it seems almost superfluous when one assumes that the first
thing to be cut down will be the funnel!
The procedure regarding encumbrances, taxes, dues and charges (Clauses 16 & 17) are
similar to those found in any saleform. What is worthy of note is that whilst a ship-breaker is
not concerned with the ship having valid safety certificates (e.g. safety radio, safety equipment
etc.) a valid Deratisation Certificate (Clause 18) is demanded. The risk of disease which rats
can carry is of particular concern to people in the tropics where so much ship-breaking is
carried out.
As with a sale forfurthertrading, the Buyers wish to have the option to place their representatives
on board. They will be concerned with monitoring what is removed under Clause 2.5, they
will also start planning the work schedule so that no time is ever lost between delivery and
commencing work.
In some cases such representatives carry out another, quite unusual, function. Sailing a ship
at speed straight for the beach is a manoeuvre totally alien to the normal ship's officer's way
of life and some firm encouragement at the crucial time can be very helpful.
Clause 20 is most important because there have been cases in the past when a Buyer has
bought a ship ostensibly for scrap only to resell it for further trading. Mention was made earlier
in this Chapter that some Owners sell for scrap as a policy to avoid creating competition.
Thus a clause committing the Buyer to scrapping the ship provides some protection.
It would be very difficult and time-consuming to argue what damages the Seller has suffered
through the Buyer trading rather than scrapping the ship which is why this saleform spells out
the amount (liquidated damages) that the Buyer would have to pay.
Clauses 21, 22 & 23 are routine but should nonetheless be studied carefully. Clause 24
Deals with arbitration and the law to be applied with various alternatives for the parties to
select the one mutually acceptable. The increasing world concern in respect of safety and
health issues for demolition workers, and environmental conditions at the demolition beaches
and recycling yards, led to the launch in August 2001 of The Industry Code of Practice on
Ship Recycling. Furthermore, in December 2003, the IMO Assembly adopted their 'IMO
Guidelines on Ship Recycling'. To ensure that full account is taken of all relevant safety,
health and environmental considerations, SIMCO's Documentary Committee have revised
'SALESCRAP 87' and re-named it: BIMCO Standard Contract for the Sale of Vessels for
Demolition and Recycling- Code Name: 'DEMOLISHCON'.
A full copy of this Contract can be found in Appendix 13A.
66
0tcMOLI1lON
6.6 OTHER SALE FORMS FOR DEMOLITION

Earlier it was mentioned that the SIMCO standard form is by no means universally used and
that different buying areas have their own favoured forms. The basic principles are the same,
the differences tend to be only in detail.
For example, in the form used by ship breakers in Pakistan there is a clause reading:
VENDOR'S CREW to leave the vessel after physical delivery with the exception of seven
crew members who are to remain on board for a maximum of seven days after delivery
to assist the Purchaser's beaching operation at Gadani Beach. However, if the Buyers
require their services for any further time then all expenses, wages, victualling from
then onwards will be for Buyer's account. The beaching at Gadani Beach will be at the
Purchaser's sole risk and responsibility.
Most demolition contracts make provision for an alternative place for delivery should the
breaker's berth be inaccessible. This is covered in Clause 9.2/9.3 in the SIMCO form.
The Taiwan contract treats this situation in a slightly different - and slightly less easily
understood - way:
If the vessel on its arrival at the entrance to Kaoshiung Harbor should not be immediately
furnished a safe berth by Buyer, the Buyer shall pay to the Seller demurrage at the rate of
$_per day or pro rata commencing 3 business days after Notice of Readiness is given
to Buyer as provided in paragraph 5 herein. Should the Buyer fail to provide a safe berth
for the vessel inside Kaoshiung Harbor within 3 business days after the aforesaid Notice
of Readiness is given, the Seller shall have the right to deliver the vessel to Buyer at the
entrance to Kaoshiung Harbor or inside Kaoshiung Harbor at Master's discretion. Buyer
must make full payment of the presented demurrage invoice through Seller's agent in
Kaoshiung to a bank account in Taiwan designated by the Seller's agent prior to physical
delivery of the vessel.
The Korean demolition contract requires that the ship's maximum height shall not exceed
45 metres from sea level and one assumes that anything protruding higher than that has to
be lopped off by the Sellers before arrival. The main ship breaking ports in South Korea both
have draft restrictions, at Inchon it is 4.5 metres and at Ulsan 6.0 metres.
6.7 THE DEMOLITION MARKET

The extracts from other sale forms for demolition are simply given as examples. Not only will
different ship breaking areas tend to favour certain forms but individual breakers may wish to
include special clauses to suit their own circumstances.
The demolition market is a specialised one and in many respects quite different from the
second- hand marketforfurthertrading. A major difference is that ship-breakers are demolishing
ships all the time. They do not want their berths to be idle, so they will wish to arrange their
purchases in such a way that as soon as one ship is completely demolished there is another
ready to occupy the berth. Once a breaker has arranged purchases for a reasonable period
into the future, he will temporarily drop out of the market (unless an irresistible bargain is on
offer) but after a few weeks he will be back again. One could almost say that ship breakers are
in the market all the time- which is seldom if ever the case for Buyers for further trading.
The prices breakers will offer will not only be affected by the freight market which influences
the number of ships available for scrapping but will also react to the price the breaker can
obtain locally for the scrap steel he is producing. This internal market for scrap steel can
vary from area to area so that an S & P Broker specialising in the demolition market will be
expected to know which breakers are paying the best prices at any one time.
67
As with most activities in shipbroking, sales of ships are reported in the shipping press
and Appendix 14 is a page from an old copy of the weekly magazine "Fairplay". As was
mentioned early in this Chapter, the activity in the demolition market is strongly influenced by
the strength of the chartering market. If rates are high, an Owner will trade his ships as long
as possible but in a weak chartering market, not only is the income low but Charterers will
tend to prefer more modern ships than those nearing the end of their working life. Thus the
number of sales for scrap will vary as the market fluctuates.
Appendix 15 is a sale report from Lloyds List which, although not recent, raises an interesting
point. Take special note of the sale of the "FAST ALEXANDRIA "which is referred to as a sale
"as is". The main thrust of this Chapter, so far, has assumed that the Seller will deliver the ship
to the Buyer's place of work. Very occasionally the task of delivering the ship to where it will
be broken is undertaken by the Buyer; who may employ a delivery crew for the final voyage.
It will be seen that the price paid for "as is" is much lower than the rest of the sales. This
is understandable because apart from bearing the cost of the last voyage the transfer of
ownership is complicated by the fact that the Buyer has to "trade" the ship for that last voyage
and so has to register it, insure it and become in every way the same as a trading Owner for
just that last trip.
Alternatively the Buyer can arrange, as in the case of the "EGE K", for the ship to be towed
to her final destination but this is a costly business and, as mentioned in the introduction to
this Chapter, has its own complications. In the report in question the actual price paid was not
reported but again it would have been much lower than for ships delivered to the breaker's
berth.

Attempt the following and check your answers from the text.
1. What is the light displacement of a vessel and how is it expressed?

2. What comprises the scrap content of a vessel?
3. The purchase price of a vessel sold for demolition is expressed in the Memorandum of
Agreement by a lump sum. On what basis is this calculated?
4. What does the expression "confirmed irrevocable" mean in connection with a Letter of
Credit?
5. Why does a sale contract for demolition usually include both a lump sum price and a
price per light displacement ton?
6. Which of a ship's normal safety certificates is the only one that ship-breakers normally
insist upon?
7. To whom was the "Mentese" sold and for what price?
8. What type of ship was the "Rastina" and where are the Sellers domiciled?
9. BP-Amoco sold one of their tankers, what was its name and who bought it?
Having completed Chapter Six, attempt the following and submit your essay to your Tutor:
Assume you are the Broker for a ship breaker for whom you have received an indication
of a ship which the Owner wishes to sell for scrap. The ship in question is a motor tanker
of 7,500 tonnes light displacement which has a bronze working propeller and a spare cast
iron propeller. The ship is able to proceed to your Principal's demolition yard under her own
power.
Compose a firm offer, giving a brief explanation for each of the terms of the offer.
68
Chapter 7
FINANCE, NEWBUILDINGS AND INSURANCE

7.1 INTRODUCTION
The purchase of a ship is a major capital transaction and although it is quite rare for S & P
Brokers to become directly involved in arranging the finance, it is important to understand
how their principals arrange the necessary finance.
In essence the Buyer either uses his own money or uses someone else's- or a mixture of the
two. To express that in more formal terms, a ship is purchased either from the Buyer's own
resources or the Buyer seeks a source of external finance.
7.2 FUNDING THE PURCHASE FROM OWN RESOURCES

It is rare for a ship of any reasonable size to be bought entirely from the Buyer's own resources.
Some ship breakers may be the exception because once they have become established,
their sale of the scrap metal can generate the cash flow necessary to purchase the next ship
for breaking and so on.
Another exception would be where the Buyer has sold a sufficient number of older ships in
his fleet or other assets to provide enough cash for the new acquisition.
One may argue that a big corporation would have no difficulty in buying ships from its own
resources but this would seldom be strictly true. Students will recall from Introduction to
Shipping that a commercial company needs capital in order to operate. In the case of a
limited liability company this capital would come from the sale of shares in the company.
Thus, when a limited company uses its own funds to purchase a ship, it is actually using its
shareholder's money.
There may be cases where a company will arrange for additional shares to be created and
placed on the stock market in order to increase the company's capital base to enable the fleet
to be expanded.
However, for all practical purposes, a company using its capital raised from shares is better
looked upon as using its own financial resources because even for major companies this
source of funding is often the exception than the rule.
7.3 BORROWED MONEY

The fact is, the majority of ships, whether newly built or second hand, are purchased with
loans specifically arranged for that purpose. The provision of those funds is a specialised
sector of the financial market.
The principle providers of loans for ship purchases are, of course the commercial banks -
those which do day-to-day business with the general public. Such banks often have specific
departments for maritime business.
Other types of bank providing ship finance are merchant banks which do not carry out
ordinary banking but concentrate entirely on providing funds for business enterprises. Slightly
different but only in detail are the finance houses which tend to specialise in providing money
for purchasing goods ranging from a hire-purchase agreement for buying a car to more major
items such as ships. There are some such lenders which deal exclusively in ship financing.
69
Whichever source is used, the procedure is similar. The first thing the lender will do is to
check the borrower's financial status. There are many and varied ways of doing this, all
quite legitimate. They include such things as studying the borrower's published accounts,
consulting with experts on the stock market, checking with credit reference agencies and
generally listening to informed market information. Specifically the lender will want to see
the borrower's cash flow forecast sometimes referred to as a business plan. This will go
into general detail about the borrower's working, earnings from other sources and financial
commitments then, particularly, it will look at the anticipated earnings of the ship in question
over the period of the loan.
The lender, as will be explained later, will also demand some form of collateral (security for
payment) as protection should the loan not be repaid but the principle comfort the lender seeks
is the reassurance of the borrower's ability to repay the loan. The lender will usually also require
that a percentage of the purchase price will be paid from the borrower's own resources.
In some cases especially when the future market prospects do not engender optimism, the
granting of a loan may be conditional upon a long-term charter being arranged which makes
for complex negotiations. The loan is offered subject to the charter, while the charter has
to be negotiated subject to concluding the purchase of the ship and the S & P negotiations
have to be subject to the charter and subject to the loan. In extreme cases the lender may
demand a proportion of the freight being directly assigned so that loan repayments are more
certain. Arrangements like these were rife around the middle of the twentieth century often
with unhappy results because the market weakened severely and the Owners were left with
inadequate cash flow to operate efficiently.
At the other end of the scale when banks have a surplus of funds and are, therefore, anxious
to make loans, lenders will be sympathetic to the borrowers' problems in the early stages
of operating a newly acquired ship, and may grant a "period of grace" which can mean, for
example, no repayments having to be made during the first year.
The security for the loan is almost always a mortgage on the ship being purchased although
the lender may require mortgage(s) on other unencumbered units in the borrower's fleet. A
mortgage is a legal document the full title of which is the mortgage deed which serves two
purposes. The first is the borrower's undertaking to repay the capital sum and agreed interest,
the second gives the lender the right to take possession of the ship if the borrower fails to
comply with this undertaking. Usually the actual loan agreement is a separate document
which details the amount of each repayment instalment, the frequency of repayments and
the way in which the interest on the loan is to be calculated. Some loans are agreed with a
fixed rate of interest but most lenders endeavour to arrange for the interest to move with the
market. This can be done because there are several officially published lending rates such
as the LIBOR which is the London Inter-Bank Offered Rate. The agreement could, therefore,
stipulate that the rate of interest on the sum outstanding shall be "2% over LIBOR".
In other countries, loan agreements arranged with a variable rate of interest may use different
bases for establishing the rate. Almost all industrialised nations have a Central Bank which
publishes changes in that country's official base interest rate.
It is important to have the terminology of mortgages clear in one's mind. The borrower gives
the mortgage and is called the mortgagor and thus the lender is the mortgagee being the
one who receives the mortgage. The act by the lender in taking possession of the ship in the
case of the borrower "going under" is referred to a foreclosing.
Interest is not the only cost incurred by the borrower because the lender will require a
commitment fee which is a single payment and is intended to cover all the preparatory work
the lender has to carry leading up to granting the loan and preparing the documents. Then
there is a management fee which is an annual charge intended to cover the lender's work
supervising the loan throughout its life. This fee would be particularly important if the amount
of the loan is so large that no single lender is happy about covering the whole amount. In such
a case one lender will lead a syndicate of a group of lenders. The leader will have additional
work keeping the other members informed (and happy!).
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FINANCE, NEWBUILDINGS AND INSU'lANCE
One can easily see that much skill is needed on both sides in order to get the best out of a
ship loan agreement. The borrower must obviously make a convincing case as to the ability
to repay the loan in order to persuade the lender. Compiling a realistic forecast is just as
important for the borrower' own purposes because there is no point in borrowing money to
buy a ship if the income will be insufficient to provide enough gross profit to run the ship, fulfil
the loan obligations and still leave a net amount to make the venture worthwhile.
The lender must also be shrewd because a fixed interest rate at a foolishly low level could
prove costly. Even more dangerous would be an unquestioning acceptance of the borrower's
cash flow forecast. Gullibility at that stage could, within a few years, leave the lender with
no other recourse but to foreclose on the mortgage. Having this right is vital to prevent total
disaster for the lender but banks are in business to "sell money" not to operate ships.
The pitfalls for both borrower and lender are manifold. Shipowners are incurable optimists
and historically, when the freight markets were buoyant, the desire to commit themselves to
new purchases seemed irresistible. Similarly, in the past, banks have had surpluses of funds
and have been rather more willing than was wise in believing cash flow forecasts. No one can
be sure that history will not repeat itself.
The problems that have overtaken such over-confidence include the obvious one of a severe
recession in the freight market. Even a modest down-turn in freights, if accompanied by
a worldwide increase in interest rates, could mean the owner's cash flow no longer being
viable. A third difficulty can arise when there is a severe distortion in exchange rates where
the loan has to be repaid in one currency with income being generated in another which
undergoes devaluation.
It has been argued that the considerable increase in the number of independent ship-
management companies during the penultimate decade of the twentieth century was due to
so many ships being repossessed by banks. Apparently banks had been over-enthusiastic
in their lending only to be faced with borrowers unable to repay. The S & P market was then
in such a depressed state that the value of the repossessed ships was well below the sums
outstanding at the time the mortgages were foreclosed; such a situation was responsible
for many people learning the meaning of the expression "negative equity" (the value of
the asset being less than the loan outstanding). Some banks, therefore, decided to trade
the ships until the market improved, using ship managers to provide the commercial and
operational expertise, this being a better option than selling the repossessed ships at an
enormous loss.
In all cases, lenders are naturally reluctant to foreclose and will far rather look into rescheduling
the loan agreement if that offers a serious hope of the rescuing the situation. Usually this
simply means spreading the loan over a longer period so that the repayment instalments are
lower.
A mortgage is not the only security that lenders will require because the right to foreclose is
worthless if the ship becomes a serious casualty. Thus the lender will demand that every risk,
which could diminish the value of the ship, is covered by insurance and that the insurance
policies name the lender as the beneficiary. Such policies include, hull and machinery, war
risk, loss of freight/hire and cover with a Protection and Indemnity Association (P&I Club)
to cover claims from third parties. The lender will take care to check that the Owner renews
these insurances at the due dates and that the value declared in the policies keeps pace with
any increased value that a market upswing might bring about.
7.4 INCENTIVES TO BORROWERS AND LENDERS
7.4.1 Shipbuilding
Has been a staple heavy industry in many countries. During the first half of the twentieth
century, the United Kingdom was among the world leaders in shipbuilding but only a few
British shipyards now remain. As industrialisation has developed throughout the world, those
71
countries with a lower cost of living have so successfully competed in ship building that
countries such as South Korea now probably produce more newbuilding tonnage than any
European country achieved at its best time.
As the forces of competition began to move against a 'traditional' shipbuilding country

there was a tendency for its government to try to find ways of subsidising shipbuilding. The
simple economic factor being that subsidising the wages of shipbuilding workers costs the
government less (both in terms of money and votes) than having a vast army of unemployed.
Furthermore, there is the added advantage of having ships to sell to the benefit of a healthy
trade balance.
Different schemes have been tried, the simplest being state ownership of shipbuilding with
selling prices being dictated by what the market will bear with no thought to the actual cost
of production.
More subtle means to attract foreign buyers when interest rates were high was the provision
of "soft" loans. At one time these were offered through the shipbuilders themselves which
received recompense directly or indirectly from the country's central bank. Competition in
this area became so intense that in the 1960s it was possible to obtain 100% finance with
about 80% of this at interest rates which bore no resemblance to the money market at
the time; such schemes often included a lengthy grace period before the first repayment
fell due.
Some regulation was brought to bear through the efforts of the Organisation for Economic
Cooperation and Development {OECD) which succeeded in getting a degree of international
agreement as to the maximum proportion of the purchase price to be lent (80% at that time)
with a maximum period (8.5 years) and a minimum rate of interest (8%).
With the competition and anti-dumping laws within the European Union, more stringent
safeguards against unfair subsidisation have been introduced.
To encourage shipowning there have been various schemes at a less frenetic level. These
have usually been achieved through tax incentives the simplest of these has been the tonnage
tax which was introduced in Greece (1990), The Netherlands (January 1996), Norway (July
1996), Germany (January 1999). The United Kingdom committed itself to such a tax in its
1999 budget and the system is now operative; tonnage tax is under active consideration in
other European countries. In essence this system allows Shipowners based in the countries
concerned to enjoy a lower and more clearly forecastable amount of tax than other sectors
of industry. The UK tonnage tax scheme differs from many others in that an Owner declaring
for this form of taxation also has to undertake to train a minimum number of seafarers each
year.
Many other schemes have been tried in the past, for example Germany and Norway particularly
targeted self-employed professional individuals by agreeing to a very much lower taxation
upon funds invested in ships under the national flag. Known as "K/S" schemes it has resulted
in many ships in those countries being owned by groups of doctors and dentists. These
schemes were withdrawn in 1998 but they had resulted in a dramatic growth in the ownership
of small to medium size vessels in Germany during the 1980s and early 1990s.
There are also incentives to lenders whose main worry is the borrower becoming unable (or
deciding to be unwilling) to continue repaying the loan. This worry would be more intense
should the S & P market be in a depressed state so that repossessing the ship would fail to
yield enough to cover the outstanding debt.
In the case of inability to pay it is fairly certain that the shortage of cash would have resulted
in the maintenance of the ship being neglected which would further reduce its resale value.
More serious still would be the case where the borrower's country is unstable politically and a
sudden possibly violent change in government could make repayment of the loan impossible;
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FINANCE, NEWBUILDINGS AND INSURANCE
the deposed government might even have been the Owner of the ship. In such a case, not
only is the loan not going to be repaid but repossessing the ship is impossible.
Fortunately it is possible for lenders to insure against such an eventuality and those
offering such cover are often government agencies or are private insurers underwritten by
the government. In the United Kingdom, this is a function of the Export Credits Guarantee
Department.
Many such incentive schemes have passed into history as a result of the general lowering
of interest rates in most developed countries but the world of finance tends to work in
unpredictable cycles and the future could well see a resurgence of incentives or subsidies.
7.4.2 Leasing
Although leasing is not much in demand by entrepreneurial Shipowners who always like to
have an assetto sell if the market makes that an attractive option. Some corporate Shipowners,
however, including even major container operators, prefer not to raise the capital at all and
leave this to a finance house. There are tax advantages to be gained by the financiers,
details of which are beyond the scope of this course. The advantage to the operator is that
vast amounts of capital do not have to be raised and serviced and the fleet is paid for out of
revenue. This system requires a bareboat charter to be drawn up and under such charters
the name and even the flag of the ship may be changed so that an operator is not bound to
lease from a financier in his own country.
Such transactions are almost invariably in the newbuilding market and the S & P Brokers who
become involved in them tend to be specialists. The principal terms of a bareboat charter
tend to follow the impression given by its name; the Owner (financier) simply provides the
ship; the Charterer (operator) provides everything else including the crew and behaves in
every way as if it is the actual Owner. The agreement would contain clauses to protect the
Owner, such as making certain that all insurances are kept up to date and at adequate
levels.
What happens at the end of the contract period varies and in some cases the ship becomes
the property of the Charterer on paying a final amount so that one occasionally hears reference
to "lease purchase" which involves a contract with remarkable similarities to a domestic hire-
purchase agreement.
7.4.3 Other Methods of Finance

Less traditional ways of raising finance but becoming increasingly popular need a knowledge
of high finance which is beyond the scope of this course but students should be aware of their
existence, they include:
Bond issues, often favoured by shipyards usually secured against the yard's receivables and
paying quite a high percentage above LIBOR.
Securitisation which is the use of a stream of income and/or a portfolio of assets to back the
issue of securities.
Mezzanine Finance, which is usually provided by specialist ship finance houses and is
defined as "unsecured, higher yielding loans that are subordinate to bank and secured loans
but rank above equity".
7.5 NEWBUILDINGS
The contract for the purchase of a new ship is quite different from that which has been
discussed in earlier Chapters which dealt with second hand ships. One particular difference
is that with a second hand purchase there is a significant element of caveat emptor- let the
73
Buyer beware. With a new sale there are far fewer imponderables because integral parts of
a newbuilding sale contract are the detailed plans and specifications.
Another clear difference is concerned with the payment. When a second-hand sale is involved
the actual payment is quite straightforward, a deposit (usually ten percent) is placed in a joint
account at the time of signing the contract. Upon delivery the deposit is released and the
remaining 90% plus agreed amounts for bunkers etc. is paid over. With new ships being
purchased from the builder the payment schedule is quite different as will be seen later in this
Chapter.
7.5.1 The Sale Contract

The first part of the contract, as with any agreement, identifies the parties being the builder
and the Buyer. It then identifies what is being purchased which is in fairly brief terms because
later in the contract it stipulates that plans and specifications have to be mutually agreed and
signed.
The ship has no name at this stage and so is identified by a builder's hull number. This
section then usually goes on to set out the basic dimensions, the main machinery, the speed
and the fuel consumption. Then there is a clause stipulating which Classification Society's
rules will be followed in the construction and it is also customary to mention at this stage
under which flag the ship will be registered on completion.
Then comes the all-important clause covering the price to be paid, the currency in which
payment is to be made and here is where the greatest difference arises between second
hand sales and new sales, the contract lists the instalments which have to be paid and when
they become due.
Whilst this is a matter for negotiation a typical pattern would be a deposit on signing the
contract of sale, a second payment when building starts - when the keel is laid is the term
usually used. Then a third payment when the ship is launched, remember there is still a lot of
work to do fitting the ship out after launching. The final instalment is made upon delivery.
This is by no means the end of clauses dealing with payment. With a ship being specially built
to the buyer's specifications, it would hardly make sense to have a simple cancelling clause
as there is with a second hand sale. Instead it is usual to agree a delivery date and then to
have a penalty clause which details price reductions if delivery is later than this date. This
is normally on a per-day basis and it is quite usual to have a table whereby the daily rate
increases as the delay goes on.
Lawyers refer to such a scheme as "liquidated damages" in the same way as one has
demurrage in a charter party. The scheme takes the similarity to charters further as there
can be a clause stipulating price increases if the ship is delivered earlier than the proposed
delivery date.
No matter how skilled the naval architects and ship designers might be, unless the ship is
a standard design - identical to others - the eventual performance, the ship's speed and
fuel consumption, can only be estimates. For this reason it is usual to have clauses covering
penalties if the performance is poorer than stated in the contract and additional payments if
the performance is better. Such clauses deal with speed differences in tenths of a knot and
fuel consumption in percentage points.
Even the deadweight - the crucial earning capacity of the ship - can vary from the agreed
specification and so a table of penalties and bonuses is normally agreed to cover any
variations.
The tables of penalties have to have a cut-off point and it is usual for the Buyer to have
the option to cancel the contract if delivery is delayed by more than six months or if other
specifications are widely awry. The clause covering this option can be complex because the
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fiNANCE, NEWBUILDINGS AND INSU'lANCE
builder clearly does not want to be left with a ship designed especially for a particular Buyer
which may have characteristics that no other Buyer wants.
It will be recalled that there tends to be reluctance on the part of Sellers to allow Buyer's
representatives on board prior to the delivery of a second hand ship but with newbuildings,
it is the rule rather than the exception for a Buyer's representative to be present in the
builder's yard from the moment building starts until final delivery. The yard has to provide
this person with suitable office space for the representative plus an assistant and the
representative usually has written authority from the Buyer to agree any adjustments and/
or modifications, including any price changes these may cause. The representative ideally
is a senior member of the Buyer's technical staff but occasionally an independent marine
surveyor will be employed for this particular task.
There are, of course, clauses dealing with modifications which may be agreed during
construction. These can be modifications in the construction specification; the Buyer may
have second thoughts Modifications suggested or requested by the builders; certain items of
equipment may no longer be obtainable. Modifications may be imposed by changes in the
Classification Society's rules. There may also be modifications in the terms of the contract
such as a revised delivery date. All such modifications have to be mutually agreed and an
addendum to the contract duly signed.
Extensive clauses may be involved in setting out the manner of the sea trials and eventual
delivery. There is rather more to such a handover process than the equivalent to a half-hour
test drive of an automobile. Such clauses set out the process of the trials as well as listing
the documents which must be handed over at time of delivery. One of these documents is,
of course the warranty because, unlike the finality of taking over a second hand ship, the
Buyer of a new ship has to be protected against faults which do not become apparent until
the ship has been in service. This one-year warranty is surprisingly similar to that which one
receives when buying a new automobile with one particular difference; it is quite usual for the
builders to provide a "Guarantee Engineer" to serve with the ship for an agreed period; his
function is to assist the officers and crew in operating their new acquisition and to liaise with
the builders about any suspected faults.
7.6 INSURANCE
The large sums involved in sale and purchase deals demand utmost vigilance about
insurance. Whilst the S & P Broker is unlikely to be directly involved in the Principal's
insurance it is important, from the point of view of understanding the Principal's problems
and even the possibility of feeling the need to offer a discreet reminder, that a knowledge of
the insurance involved in the purchase of a ship work is essential for the S & P broker.
First of all the Buyer of a second hand ship has to make arrangements well in advance of
delivery so that, at the precise moment when the ship becomes the Buyer's property, the
insurance cover comes into effect. The basic cover is for hull and machinery which, as the
name implies, covers risks to the ship itself. In addition, a wise Buyer will have business lined
up as soon as possible after taking delivery and so will need also to have cover for freight
(the policy would also include hire if the ship is going on time charter).
Students will know from their Introduction to Shipping and Shipping Business studies, that
this form of insurance will be placed, through an insurance broker, either with Lloyds or with
an Insurance Company specialising in marine insurance.
The Buyer will also need third party insurance, which is usually covered through a Protection
and Indemnity Association more colloquially known as a P&l Club. Such associations are
unlike Lloyds or Insurance companies in that they are non-profit making mutual associations
run by and for their members. They cover all forms of third party risks including inter alia
claims by merchants for loss or damage to cargo, claims by parties whose property has been
damaged such as port authorities and claims for death or injury to members of the crew.
75
Specific to ship purchase is the Mortgagee's Interest Insurance which a lender may insist
upon as part of the terms and conditions of the loan. This would be in addition to the normal
insurance. One would have expected that the normal insurance policies, suitably claused
to include the mortgagees as joint beneficiaries, would have been sufficient but there are,
of course, cases where the insurers may refuse to pay the Shipowner. Payment could be
refused if, for example, the Owner had failed to comply with expressed or implied warranties
written in the main policy. Similarly, if the Owner failed to maintain the ship's Class the policy
would be void and in such cases there would be no pay-out in the event of a total loss leaving
the lender with no payments from the Owner and no ship upon which to foreclose. The Owner
takes out the policy and pays the premium because the level of premium will be assessed by
the underwriters on the Owner's (not the lender's) reputation. The policy is, however, drawn
up with the lender as the beneficiary and is held by them as security.
Where a newbuilding is involved it is usual for there to be a Building Risk Insurance Policy.
In this case the builder takes out the insurance and pays the premium (as it is their record
upon which the premium will be based) but the Buyers will be shown as the beneficiary with
the finance house lending the money wanting their name included also. Such a policy covers
loss or damage to the ship during its period of construction, fitting out and sea trials and
covers the Buyer for the loss of progress payments (instalments) already made to the builder
as well as consequential losses such as loss of earnings, and extra costs arranging for the
building of a replacement ship.
There is also a special policy available to Owners to cover a ship on its final voyage to the
breaker's yard called a Breaking-up Conditions Policy. Such a policy recognises that the
ship is in a run-down state although still in Class to sail under her own power. It covers
any repairs to, say, the main engine in order to ensure that the ship does reach its final
destination.
7.7 INSURANCE FOR THE S & P BROKER

No matter how painstaking a Broker may be, accidents can happen it is, therefore, prudent for
a Broker to seek insurance cover. As has been mentioned several times in this Chapter, the
sums involved in S & P are often enormous and it follows that quite a small error could result
in a hefty claim. Even a completely unjustified claim (the mis-directed arrow), once entered
into the legal arena, has to be fought and fighting legal battles is a very costly business.
One can find Errors and Omissions Insurance from several sources although taking
such cover through a P&l Club specialising in Brokers' problems can bring greater benefits
including friendly advice such as a suitable course of action to avoid a claim arising. Such a
club, as well as providing legal defence against claims and eventual payment if negligence
is proved also offers a service to assist in extracting legally due commissions from reluctant
Principals.

1. What is meant by the acronym "LIBOR"?

2. Define the following:
(a) Mortgagor
(b) Mortgagee
(c) Commitment Fee
(d) Management Fee
(e) Negative Equity
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FINANCE, NEWBUILOINGS AND INSU'1ANCE
3. What are the main methods of raising the capital to purchase a ship?
4. What are the advantages to leasing rather than buying outright?
5. What type of operator is unlikely to prefer leasing and why?
6. What is the purpose of "tonnage tax" to a government?
7. What is the most significant difference between a sale of a second hand ship and a
newbuilding?
8. What happens if the performance of the ship is not exactly as set out in the contract?
9. At what stages do the instalments of the purchase price have to be paid?
10. How long is the usual warranty period for a new ship?
Having completed Chapter Seven, attempt the following and submit your essay to your
Tutor:
1. Discuss the different ways a Buyer can finance the acquisition of a ship and explain the
documentation which may be involved.
2. Analyse the risks Buyers and Sellers face around the time of a sale taking place and the
types of insurance necessary.
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Chapter 8
LEGAL ASPECTS OF SHIP SALE AND PURCHASE

8.1 INTRODUCTION
This Chapter deals with the law from two points of view. First, the legal framework within which
S & P negotiations take place and secondly, a brief consideration of the types of disputes that
may arise and the methods used for their resolution.
A general approach to the law will be covered by readers in their reading of the Legal
Principles in Shipping Business; this Chapter concentrates on S & P matters.
8.2 THE SHIP SALE AND PURCHASE BROKER

Broker, in this context, is another name for Agent and all the law relating to agency apply.
In particular, the S & P Broker when involved in negotiations may only make offers on the
Principal's behalf, strictly in accordance with the authority received from the Principal. Unlike
port agents and liner agents who often have to act on the basis of implied authority, the
S & P Broker almost invariably acts on express authority.
S & P Brokers and their Principals have the right to assume that, when receiving a firm offer,
the Broker making it has authority to do so - that is warrants that he/she has that authority.
If, deliberately or accidentally, the offer being passed is not exactly in accordance with the
Principal's authority then the Broker is in breach of warranty of authority. In the situation
described the breach would be considered as "with negligence" and any financial loss suffered
by either or both the Principals would result in a claim for damages being made against the
Broker who made the incorrect offer and there would be little chance of any defence against
such a claim.
There are rare occasions when more than two Brokers are involved and if an error is made
by the Broker for the Principal to the intermediate Broker it is still the latter against whom the
claim will be made. This is described as breach of warranty without negligence. This may
seem unfair to the defendant Broker who, after all, passed the offer forward in good faith but
the law says that the injured Principal was certainly blameless and should proceed against
the Broker with whom there is direct contact; the injured Principal has no contact with the
errant Broker. It is up to the defendant Broker to proceed against the negligent Broker in due
course, regardless of the success or failure of the outcome.
Another area where a Broker can be in trouble is in the failure of duty of care. For example,
in his or her enthusiasm to bring about a successful sale, a Broker may give an over-optimistic
opinion of the financial integrity of one of the Principals. If, later on, this is proved to be false
and financial loss is suffered by the other Principal, there would be a case against the errant
Broker.
A seller's Broker can be inadvertently guilty of misrepresentation if false information about

the ship is passed on. Even innocent misrepresentation can leave the Broker open to a claim
to indemnify the victim for any actual expenses unnecessarily incurred. This is why all lists of
particulars circulated on the market by whatever means should include the words "believed
to be correct but not guaranteed".
If the misrepresentation is not inadvertent (innocent misrepresentation is how lawyers

describe it) and if a party is induced into concluding a contract based upon deliberately false
information it goes beyond the tort of a failure of a duty of care and becomes fraud. The
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Sf-tiP SALE AND PuRCHASE
damages that the injured party can claim are far greater and there is the added risk of criminal
action also being taken.
As a passing note in the law of agency, although it is common in tanker chartering, it is

very rare for there to be only one Broker involved in ship sale and purchase negotiations.
Nevertheless it does happen occasionally and in such a case the situation is rather different
in that the Broker is not the Agent for either Principal except for the purpose of receiving and
transmitting offers. But the penalties for errors are much the same.
8.3 THE BROKER'S COMMISSION

A Broker who brings about a successful sale or purchase has a right to be paid a commission.
As mentioned in earlier Chapters, this is customarily 1% of the purchase price to each of the
Brokers involved although this may vary as a result of negotiation. Although it is normal for
one Broker to represent the Buyer and the other to represent the Seller, it is the Principal who
receives the money- the Seller- who pays both (or all, if there are more than two) Brokers
involved.
In a charter party, there is usually a commission (brokerage) clause and now, even under
English law, since the introduction of the Contracts (Rights of Third Parties) Act 1999, the
Brokers have enough legal power to enable them to sue for their commission if it is not
forthcoming. It would be very rare indeed, however, for a commission clause to appear in
a contract of sale of a ship so that S & P Brokers may have no protection under the 1999
Act. In some countries, the many references to commission in the negotiations would be
sufficient evidence of an obligation to pay the Brokers their due but there is still a hang-up
under English law that the Brokers do not have "privity" to the sale contract and so cannot
sue under that document. Thus it would always be wise for the Brokers, once the deposit
has been paid, to write to the Seller confirming their position and the brokerage agreed as
being due to them when the sale is finalised. Most jurisdictions would accept such a letter
plus the supporting evidence of the negotiation messages as enough to give judgement in the
Brokers' favour. The Brokers' letters may not necessarily have to be acknowledged as the law
in many jurisdictions recognises "silence means assent" but of course, there has to be proof
that what was sent by the Brokers was received by the Seller.
With second hand sales and sales for demolition, special care is needed in those cases
where the Seller is a one-ship company; once that one ship has been sold the company can
become a mere shell in a matter of minutes; in lawyers slang they have become "men of
straw" or "are not worth powder and shot".
In such cases, however, the S & P Broker should be sufficiently expert to know who the Seller
really is and should make appropriate arrangements - S & P commissions are too hard to
come by to leave anything to chance.
There have been unpleasant cases in the newbuilding market. Because so much of the
negotiations for a new ship are tied up in the technical specification, it is not unusual for the
Buyers to talk directly with the builders. Such discussions can take a very long time and
when the deal is finally agreed, the Broker may be left out in the cold. If such a sale was
genuinely initiated through the introductions made by the Broker, a clear understanding about
commission should be reached at the outset; courts will demand a great deal of proof after
the event.
Another commission situation which arises more often in newbuilding contracts than with
second hand or demolition sales, is when the Brokers fulfil all their tasks during negotiations
culminating in the production of the appropriate saleform, which is duly signed by both
Principals. Then, at a later date, usually well before building has actually commenced, the two
Principals decide to cancel the contract. The Brokers feel that as they have fulfilled all they
were expected to do, at some significant expense in cash as well as time, that they deserve
payment. At this point the Sellers point out that commissions are payable on payments
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LEGAL AsPECTS OF SHIP SALE AND PuRCHASE
received by them for the ships but as there were no ships there will be no payment. Brokers
have fought cases like this in the courts and lost.
Thus when compiling their commission letters at the completion of negotiations, Brokers
would be well advised to include a clause protecting them against their Principals cancelling
the contract.
8.4 THE LAW AND THE SALEFORM

If legal problems arise in a ship sale, they will almost always be between Buyer and Seller.
It is, however, in the S & P Brokers' own interests first, to endeavour to ensure that the sale
contract is as watertight as possible so that disputes do not occur. Secondly, if trouble does
arise, the Brokers need to be ready to supply any help or advice with a view to reaching a
solution. Thirdly, if the dispute becomes insoluble without recourse to arbitration or the law,
the Broker will almost certainly be called as a witness and his files and any contemporaneous
notes may be subpoenaed.
A note of caution here. S & P Brokers should not give up their files at the first request
especially if that request is made by the lawyers representing "the other side". If in any doubt,
the Broker should seek the guidance of his/hers firm's own legal adviser.
8.4.1 When Does a Binding Contract Exist?

It should be noted that the title printed at the top of the Norwegian Saleforms is "Memorandum
of Agreement" which mean what it literally states that an agreement has already been made
and this document merely sets the details down on paper. The agreement becomes binding
when everything has been agreed between the parties and any "subjects" have been lifted.
The messages exchanged between the Brokers and between the Brokers and their Principals
provide adequate evidence of what has been agreed.
The one exception to this rule relates to the inspections referred to in Clause 4 of the Saleform.
It will be recalled from an earlier Chapter that it is now rare for a sale to be agreed and an
agreement signed without the inspection of the ship's records and superficial of the ship itself
having taken place and approval given. The form does, however, allow for agreement to be
reached with either or both of these inspections still to be undertaken and in the unlikely event
of this being so, it is important to remember that the buyer can "walk away" from the deal after
the inspection without giving any reason. The agreement is binding insofar as the seller is
bound to provide the opportunity for buyers to inspect.
It will be recalled from Chapter 5 that the Norwegian Saleform 1987 uses the expressions
"sold" and "bought" whilst the 1993 form more correctly states "agreed to sell" and "agreed to
buy" as the ship is not finally sold until it physically changes hands.
Even as relatively recently as 1990, a court held that the contract of sale was definite when
negotiations were concluded and it was not conditional upon signatures on a formal document.
Conversely, if a sale is concluded "subject details" it would be very rare, in most jurisdictions,
for it to be considered a binding agreement until the details had all been agreed; the American
courts have been known to rule otherwise.
8.4.2 Identifying the Parties

Normally, the Sellers are the Owners of the ship although, in the case of one-ship companies,
the negotiations are conducted on behalf of the real Owners who sit behind the shell company
registered as the Owners. From both the Buyer's and the Brokers' points of view it is vital to
establish who the Seller really is and is in a position to sell the ship.
There can be an exception to this rule if the ship being sold is the subject of the sort of bareboat
charter which allows the Charterer the option to buy the ship outright at the end of the term
on payment of a final sum. The market could favour taking up this option and then selling the
81
SrUP SALE AND PURCHASE
ship as soon as it becomes the Charterer's property. In such a case the negotiations may
be taking place during the closing weeks of the bareboat contract. This should be clearly
understood during negotiations and protective steps taken to cover any unforeseen snags.
It is equally important to identify the Buyers because it is not unusual, especially if the
beneficial owner places each of his ships under separate companies, for the intended owning
company not to be incorporated at the beginning of negotiations. It is vital to realise that any
agreement finalised with a company that does not legally exist is null and void.
8.4.3 The Price and Payment

In Chapter Five it was stressed that there are certain items included in the sale but not
included in the price. Agreement has to reached concerning the amount to be paid for bunkers,
lubricants, stores and provisions on board at time of delivery. S & P Brokers would be well to
remember that time spent achieving watertight agreement on these items during the course
of negotiations will save far more time on disputes at time of delivery which are out of all
proportion to the amounts involved.
The Saleform is very strict regarding the deposit which has to be paid and how soon after the
date of the agreement payment must be made. Modern parlance now uses the expression
"banking days" when referring to time, which is thankfully clearer than such expressions as
"working days" when talking about payment. The form allows the seller to cancel the contract
if the deposit is not made within the time agreed. This is not an easy way for the Buyer to
get out of the contract if he has changed his mind because a contract has been made and
if it collapses due to failure to provide the deposit, the Seller can claim compensation for his
expenses and losses.
The terms relating to final payment are even stricter and it is important for the S & P Broker
to establish just what method will be employed because the Broker is often called upon to
"stage manage" the actual han dover which will include, among several other items, ensuring
that the payment takes place. So often the Buyer, the Seller and the place of delivery are in
three separate locations so that getting bankers in line at the crucial moment needs careful
planning.
8.4.4 Inspections
Superficial inspection was dealt with earlier in this Chapter, but before leaving the subject it
is worthy of note that so far as inspection of Classification Society records is concerned there
is no contractual relationship between the Society and the intending Buyer. This means that
if there is something amiss with the records and the Buyer considers he has suffered as a
result, his only recourse against the Society would be in tort, on the basis that the Society
had failed in its duty of care. The courts are, however quite cautious as to how strictly to apply
this duty of care towards a Buyer and in any case, damages under tort do not include pure
economic loss.
The other inspection is the dry-docking clause, (clause 6 in the Saleform). Not strictly dry-
docking now that qualified divers can be employed to carry out inspection below the waterline.
Students should study the dry-dock clause to the point of learning it by heart because
although it appears complex, it is really a masterpiece of fairness. However, its very apparent
complexity makes it a favoured question by examiners.
A vital point to remember is that whilst the intended Buyer can walk away from the deal at the
time of superficial inspection (clause 4) all the remedies are covered in the dry dock clause
(clause 6) and there is no walking away from the deal at this stage unless there has been
flagrant misrepresentation.
8.4.5 Cancelling Date

All sale contracts will include a cancelling date. It is important to bear in mind that if the ship
is late, cancellation is not automatic. The cancelling date clause essentially provides the
82
LEGAL AsPECTS OF Sr~IP SALE AND PuRCHASE
Buyer with an option to cancel. Almost invariably the "sudden death" aspect of a cancelling is
modified. It would be rare indeed for a contract to allow a situation to arise where the Seller
presents the ship just an hour late only to have the Buyer walk away demanding his deposit
back. It is more normal for a clause to be agreed which allows for the Seller, as soon as it
becomes apparent that the ship is falling behind schedule, to advise the Buyer. The Buyer
then has to say whether he intends to cancel, if so, contract is cancelled there and then. If the
Buyer wishes to maintain the contract parties agree a new cancelling date.
The S & P Broker (in his or her own interest) will keep careful watch on the ship's position
and must be prepared to remind the Seller if the need arises. Furthermore, the S & P Broker
may become involved in passing on such information and it is vital that this and any notices
of readiness are transmitted meticulously. Failure in this respect could result in one or other
Principal suffering financial loss and will then have a claim against the errant Broker.
8.5 SPARES, BUNKERS ETC.

Enough has probably been said about how disputes can arise in this area and Brokers can
do much to ensure that the clauses covering these items are crystal clear. If the Broker needs
more incentive, remember there is no commission payable on the money paid for these items
so that unnecessary work in this area is totally unproductive.
8.6 MARITIME LIENS AND ENCUMBRANCES

Debts incurred by a Shipowner or claims made which have not been settled can result in
the plaintiff obtaining a writ to enforce the claim. Some such claims are such that they are
considered to be against the ship itself and thus remain in force even if the ship changes
hands. This is referred to as a maritime lien and to enforce it the ship can be arrested. The
new Owner cannot lift the arrest by arguing that he was not involved and so may be in the
unenviable position of having to pay - perhaps a large sum - to settle the previous Owner's
debt.
Under the heading of "encumbrance" the outstanding claim could be for repayments under
the previous Owner's mortgage. Note that there could be more than one mortgage. A vessel
can well become worth substantially more than is left to be repaid upon the original mortgage,
either through the passage of time allowing much of the debt to have been repaid, or through
the market being in a far more buoyant state than when the ship was bought. In such cases
an Owner could take out a second mortgage to raise capital for another venture. There is,
in fact, no limit to the number of mortgages that can be taken out on a vessel beyond the fact
that the lenders will make sure that there is enough value un-mortgaged to justify another
one. In the event of a foreclosure when there is more than one mortgage, the priorities are
taken in the order in which they were entered into, so second mortgages may turn out to be
worthless if things turn bad.
Thus, Saleforms include a clause confirming that the ship is free of any such liens or
encumbrances and goes on to require that the Seller indemnifies the Buyer against any claim
that may come to light.
The Seller may state that there are no outstandings in good faith because he may be unaware
of the existence of a writ. The creditor is under no obligation to advise the Owner that a writ
has been obtained, he may simply be waiting for the ship to arrive at a place where the arrest
laws are least complex.
There is no guaranteed way of ensuring a ship really is free of any claims but in, theory at
least, some checks can be made. For example, in many countries the Owner is obliged to
declare to the ships registrar if there is a mortgage outstanding. Similarly in some countries
the statutory accounts, which are lodged with the registrar of companies, may disclose any
mortgages. Even a study of the ship's logbooks will indicate if any incident had occurred
83
S>-11P SAL.E AND PuRCHASE
(such as damage to port property) which might be the subject of a claim. A Buyer may seek
the Broker's assistance in appointing someone to check some of these details.
There is one circumstance where there is an "encumbrance" about which all parties are fully
aware. This is when the Seller seeks to dispose of his ship while it is still under charter.
This is, of course, only likely to arise if the ship is on a long term time charter or consecutive
voyage contract but it is by no means an uncommon occurrence.
Unless the charter party covered such a situation in advance, the Charterer is not automatically
obliged to agree to the change of ownership. The Buyer, in the Charterer's view, might be
considered less reliable than the Owner with whom the charter party was originally agreed.
The Buyer might wish to change the ship's flag which could cause problems for the Charterer.
In fact there are several possible snags so nothing may be taken for granted.
It is vital, therefore, that the S & P Brokers ensure that someone is keeping the Charterer
fully informed and that he is not finding any part of the intended outcome repugnant. Even so,
the sale negotiations must be conducted "subject charterers approval" and when all the sale
terms have been agreed, a tripartite agreement has to be signed by the Buyer, the Seller
and the Charterer which will form an addendum to the charter party.
8.6.1 At Place of Delivery

Law books have more cases about disputes relating circumstances at time of delivery than
any other part of the Saleform. Many of these concern arguments about the ship's condition
being in a worse state than at the time of the superficial inspection. There is little the S & P
Broker can do if such disputes arise as they are almost always concerned with the physical
state of the ship rather than any ambiguity in the wording of the contract.
Among the areas of dispute at the time of delivery is that phrase which is included in all
negotiations but is often misinterpreted. The ship is to be delivered "free of average damage
affecting class". The key word here is "average" because the words do not refer to any
condition which might affect class but only that type of damage which has been occasioned
by a peril of the sea and can be insured against. This problem can be circumvented only if the
clause is modified to read "free of average damage or defects affecting class".
Of course the delivery clause does place an obligation upon the seller to report any other
defects 'coming to their knowledge' which could result in class being withdrawn or a
recommendation being made by the society. The Seller could not fail to be aware of any
accidental ("average") damage but could be genuinely unaware of a condition brought
about by fair wear and tear which could affect class. Thus if, shortly after taking delivery, the
Buyer discovers the need for some repairs without which class could be in peril it would be
necessary to prove that the Seller was aware of this problem but failed to report it which is
not an easy thing to prove as evidence would be hard to find.
One may see that, in this vexed area of condition at time of delivery, there is another reason
for Sellers to be anxious to avoid Buyer's representatives being allowed on board prior to
delivery as they could spend their time rooting around looking for defects which should be
reported to the classification society.
An area of dispute peculiar to sales for demolition is over the ship's light displacement. As
was mentioned in an earlier Chapter, the light displacement of a ship is the actual weight
of potential scrap for which the Buyer is paying. The saleform allows for the lumpsum and
the price per light displacement tonne to be shown and there have been cases where time
and money have been wasted through the Buyer (often quite correctly) challenging the light
displacement.
If such a dispute arises, it could well be appropriate to blame it upon sloppy braking. Any Broker
working in the demolition market is fully aware of the importance of the light displacement and
if either Broker had the faintest hint that the light displacement might be other than as stated
in the exchanges of offers, then a brief investigation at that time might save a great deal of
84
LEGAL AsoECTS OF Se~IP SALE AN:> PuRCf-IASE
time being wasted later on. Principals are always ready to blame Brokers if things do not go
smoothly so that reputations as well as time may be saved by careful checking.
8.6.2 Default by Either of the Parties

If either the Buyer refuses to accept the ship, or the Seller refuse to hand it over there is
certain to be either an arbitration or a court case. In either instance, the Brokers will almost
certainly be involved as witnesses. In the worst situation they may be joined in the action
if some negligence on their part was in any way a contributory factor. At the first hint of the
Broker being involved is the moment to seek professional advice.
8.7 DISPUTE RESOLUTION

In earlier part of the text reference is made of "arbitration or court action" but most Saleforms
specify arbitration as the method of dealing with disputes. In most jurisdictions the courts will
refuse to hear a case if the contract has a clear arbitration clause as is found in the Norwegian
Saleforms.
There are several centres of arbitration with London and New York having rival claims as
to being the pre-eminent. London can claim to have been in existence longest and it will
be noted that in the 1987 form, London is the automatic centre if the parties do not state
otherwise. The 1993 form goes more fully into the matter having three options, London, New
York or a different centre agreed by the parties.
In the case of London being chosen, it is common for the parties to specify "subject to London
Maritime Arbitrators Association Terms". Brokers should have no hesitation in recommending
this to their Principals because it ensures that the parties know where they stand as to
procedure. Were the parties simply to state "arbitration London" it would not even guarantee
that the arbitrators would be expert in S & P law.
Incidentally, unless otherwise stated, arbitration in London will be according to English law and
arbitration in New York according to United States law. It is theoretically possible for arbitration
in one place to be decided according to the law of another, for example arbitration in London
according to Republic of South African law. It is important, if option C in the Saleform 93 is
used, that the legal code to be employed is clearly stated.
As it is highly probable that the Broker(s) will be involved to a greater or lesser extent in any
arbitration, some knowledge of the procedure is important.
Under the Saleform 1993, as soon as one or other party has decided that arbitration is
necessary, he will appoint an arbitrator and inform the other Principal who has to appoint his
own arbitrator within 14 days. If this is not done, then the first party can insist on his appointed
arbitrator being the sole arbitrator.
It is possible that the two arbitrators will be unable to agree; in such a case, they have to
appoint a third arbitrator, referred to as an umpire.
The procedure as printed in the 1987 Saleform is rather different. It begins by saying that
the dispute should be referred to a single arbitrator but if the parties cannot agree to a single
arbitrator then three arbitrators are to be appointed one by each of the parties and the third
to be appointed by - and here a blank space is left but a footnote makes provision for the
President of the LMAA to appoint the third.
Serious and/or complex arbitrations will probably require oral hearings at which the parties
present their respective cases and produce their evidence; witnesses may be called,
including expert witnesses if appropriate. It is becoming the rule rather than the exception
for solicitors and barristers (attorneys and advocates) to become involved which makes the
whole procedure very expensive and time-consuming. Many feel this destroys the spirit of
85
arbitrations but the whole world seems to be becoming more litigious so this practice is to be
expected.
Arbitrations for relatively simple disputes are often settled on documents only which is
obviously going to be cheaper and quicker. For this procedure, if agreed by the parties,
the party initiating the dispute presents his case in writing with supporting evidence to both
the other party and the arbitrators. The respondent then presents his submissions, with any
counterclaim if appropriate. Both parties may give seven days notice of their intention to
present further submission(s) after which the arbitrators consider the case and make their
award.
Most other centres have their own arbitration associations, typical is the Society of Maritime
Arbitrators Inc based in New York and their terms are largely similar to those of the LMAA.
One notable difference is that New York arbitrations are published in the same way as the
result of court hearings whilst in London, the outcome of an arbitration is considered to be
confidential to the parties involved. Either way, unlike courts decisions, the decision of one
arbitration cannot be cited as a precedent when hearing a subsequent case.
The original idea behind opting for arbitration rather than going to court was that the dispute
should be decided by fellow practitioners in the business who would seek a commercial
solution to the problem. Thus arbitration was indeed quicker and cheaper than taking the
dispute to court. There are some, however, that feel that things have changed for the worse
and that the greater involvement of lawyers, whose instinct inevitably is to seek a purely
legal solution, has resulted in there now being little to choose between arbitration and a court
hearing.
To circumvent this difficulty, there have been several innovations introduced on both sides of
the Atlantic most are geared towards relatively small claims where the cost of a full arbitration
could exceed the amounts involved. These schemes endeavour to bring the non-court way
of dealing with disputes back to the original spirit of arbitration. They tend to be referred to
under the heading of ADR- Alternative Dispute Resolution and these can include Mediation,
Conciliation, Fast and Low Cost Arbitration.
Sometimes a party to a dispute can become emotional about the "injustice" of other party's
behaviour but a trusted S & P Broker can often help to guide the Principal to a simpler and
cheaper form of resolution of the dispute rather than rushing headlong into full arbitration or-
worse still- a court action.
English law recognises that the courts have more than enough to occupy them and legislators
constantly seek ways to make arbitration as swift and clean as possible. Thus, under the most
recent Arbitration Act (1996), an appeal against an arbitration award is only possible where
the arbitrator was obviously wrong, especially on a point of law or in the case of considerable
general importance.
8.8 THE S & P BROKERS ROLE WHEN PRINCIPALS ARE IN DISPUTE

As has been mentioned earlier, the Brokers involved in a transaction about which a dispute
has arisen are very likely to be called as witnesses which is never a pleasant experience. Even
less pleasant if there is any hint that the Broker's negligence may have been a contributory
cause. It was also mentioned earlier that if in any doubt, the Broker should seek the guidance
of his or her own legal advisor.
Any testimony the Broker gives will invariably involve referring to records of events at the
material time. In the pre-electronic era, such records would be found in the Broker's day-
book in which, hopefully, a note of every conversation would appear and there is nothing that
lawyers arbitrators and judges like better than contemporaneous notes.
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LEGAL AsPECTS 0" SHIP SALE AND PuRCHASF
Today, much of the interchange between Broker and Principal and between Broker and
Broker will be via a computer screen. It is vital, therefore, that all these exchanges are able to
be recovered which demands a foolproof method of keeping archives and this must be part
of the Broker's system in much the same way as the Broker half a century ago could produce
old notebooks out of a convenient cupboard.
8.9 ETHICS AMONG S & P BROKERS?

In the days when the most advanced electronic aid was the telex machine and lists of
particulars were distributed by Sellers' Brokers via the postal services, life proceeded at
a more leisurely pace. At that time there was an unwritten rule among Brokers and their
Principals of a "first come first served" principle; one dealt through the one who first mentioned
the business to you. In this far faster electronic age where nowhere in the world is further
away than the screen of one's computer, there seems no room left for such niceties. The
task now is to consolidate one's reputation and rapport with one's Principal so firmly that if
a distant Broker, on learning of a ship for sale from you, goes direct to your Principal, that
Principal will still continue to work through you.

1. What is the difference between express authority and implied authority?

2. How can breach of warranty of authority without negligence occur?
3. Who pays Brokers' commissions?
4. Where does the clause about S & P Brokers' commissions appear?
5. What are maritime liens and encumbrances?
6. What expression do the Saleforms use to describe days?
7. How can there be a maritime lien without the Seller knowing about it?
8. When does a binding contract exist?
9. What words should always accompany the description of a ship which is in the market to
be sold?
Having completed Chapter Eight, attempt the following and submit your essay to your Tutor.
1. As the Buyer's Broker, you have successfully concluded the sale for further trading of a
second hand ship and the Saleform has been signed by both parties. Draft a letter to be
despatched to the Seller, securing your position as to payment of your 1% commission.
2. The Principals in your current ship sale negotiations do not want either London or New
York arbitration, preferring it to take place in Ruritania. Draft a clause suitable for option
C in the Saleform 1993.
87
Chapter 9
THE MARKETS AND THE PARTIES INVOLVED

9.1 INTRODUCTION
This Chapter will discuss the practitioners in the S & P world, their location and the national,
international and geographical factors that influence this most capital intensive of all the
shipbroking markets.
9.2 SHIPOWNER PERSONALITIES

In the days when a large majority of the world's broking was carried out on the floor of the Baltic
Exchange in London, a senior member of one of the broking firms attended the Exchange as
a visitor. He was not a Broker himself; he was an economist. His discussion revolved around
his trying to relate - without much success - what was going on around him to what he had
studied for his economics degree. In exasperation, a seasoned Baltic Exchange Broker told
him to forget about his economics degree because, in that centre of shipbroking, a degree in
psychology would be far more use.
The days of face-to-face, pocket notebook broking have long gone but in the S & P markets
the influence of psychology rather than economics can still be encountered in some
quarters.
Containers. In an earlier Chapter, mention was made of the "entrepreneurial Shipowner"

versus the "corporate Shipowner" which is a fair division of the two basic types. Taking the
corporate category first, the best examples are to be found among European and Japanese
container operators in the general cargo world.
They would claim that very little psychology affects their decision-making. They argue that
no decision is taken until all the economic factors have been assessed in the most scientific
manner possible. Certainly, in Japan, there is a tradition of reaching decisions via a consensus
in a committee; individual personalities are seldom overtly apparent. In Europe, however, the
top man is usually well known and will tend to have considerable influence over the basic
philosophy of the company. Nevertheless, the final decisions tend to be made by committees
which do not reach conclusions until reports from economists, market researchers, naval
architects and other experts have produced their reports. This description is probably
epitomised by P&O/Nedlloyd but in the same league of major container operators there is the
Maersk organisation, which can still be described as a family company and no doubt there is
a high degree of individual decision making involved.
In the case of major container operators such as these, the main influence will be economies
of scale and market share. This does not automatically mean ever-larger ships because three
major limiting factors will influence their decision-making.
First, the physical accommodation of the ports and their approaches. Assuming that, for
some trades the restriction of Panamax has been circumvented resulting in the largest ships
today gaining the title of Post-Panamax, depth of water is still an obvious constraint, not only
at the berths themselves but already some sea areas such as the English Channel, and the
Malacca Straits are reaching the limit of their capacity in draft terms. The shore cranes also
have reached the limit of their reach and extensive new equipment will be needed if ships
become larger.
Secondly, these ships depend mainly upon manufactured goods to fill their containers and
there is a limit to how much the producers can turn out and the consumers can absorb in
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SYIP SALE AND PURCHASE
any given time. There is no point in having the world's biggest container ships if one cannot
generate enough cargo per voyage. In any case shippers prefer more ships rather than bigger
ships in order to provide them with the sort of frequency of sailings that permits both exporter
and importer to maintain the lowest possible inventory such as is the essence of the "just in
time" system.
The third limiting factor to size increases is the technical one. Naval architects are of the view
that ships of around 8000 teus are the largest that can be propelled with a single screw and
single engine. The increase in capital cost to install two engines would demand such a huge
increase in carrying capacity that the other two factors mentioned above would come into
play even more forcibly.
It is interesting to note, as was mentioned in Chapter One that some transatlantic container
operators are thinking smaller rather than larger but with a much higher speed. A 40 knotter
can cross the Atlantic in seven days and it will be interesting to see how attractive this fast
transit time will prove to the merchants. One of the principle attractions that speed offers is
the fact that working capital is tied up for a shorter period but that appeal only becomes really
pressing when interest rates are high.
As container operators move to ever-larger ships, so they reduce the number of ports at
which they call. This is both for reasons of voyage economy and the fact that the larger the
ship the fewer the ports big enough to accommodate them. These are referred to as "hub"
ports and a classic example would be Singapore. Singapore has a relatively small amount of
traffic for its own purposes but acts as a base for transhipment to places all around south-east
Asia, even as far afield as Australia.
Larger ocean carriers means fewer "hub" ports able to accommodate them thus more feeder
ships will be required and this is where the entrepreneurial Shipowners come into their own.
There is a flourishing charter market in small to medium container ships many of them "self
sustaining" (with their own cargo gear) to serve the unsophisticated ports which have no
shore cranes. Just as there is a busy chartering market coping with the fluctuating demand for
feeder vessels, so there is in ship sales. Shipowners in this speciality keep a constant watch
on trends in container cargo movements and seek to own those ships which are most sought
after by the major operators. S & P Brokers need to be just as knowledgeable about the
container feeder business and the salient features of the types of ships in greatest demand if
they are going to impress Principals.
There are no dominant geographical locations for Owners of container feeders. Those ships
serving the 'hubs' in northern Europe and Atlantic North America will be owned under a variety
of flags. Hong Kong and Japanese Owners will be prominent among those concerned with
hub ports either side of the Pacific. In south and south-east Asia, especially, the Owners of
ships trading to the least sophisticated ports, one will find local Owners predominant.
9.3 DRY BULK CARRIERS

Market research and route planning are not such pressing problems for the owners of large
bulk carriers in the dry cargo market. In the case of the two main commodities, coal and iron
ore, the market research is the affair of the consumers of the raw material who decide what
level of manufacturing the market demands. The routes will be dictated by the price of the
raw materials; distance has rather less influence than it did when a large ship was measured
in tens rather than hundreds of tonnes.
A significant proportion of the supplies of dry bulk materials tend to be contracted on a long
term basis; many of the ships being specifically built to the specifications demanded by
the Charterers. However, being prudent Charterers they avoid becoming overstocked with
material. This means that for most of the time there is a thriving voyage charter market in
which ships required to fill gaps in the Charterers' programmes are taken on; once again this
type of market is a magnet for the more speculative Shipowners.
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THE MARKETS AND THE PARTIES I'NmVED
This is probably a suitable place to refer to the most notable of the entrepreneurs in the
shipowning world -the Greeks. They have been making highly individual decisions since
the first half of the last century and certainly prior to the Second World War there was a
community of "London Greeks" regularly attending the Baltic Exchange. Immediately post-
war this community grew with the availability of a large number of redundant, mass-produced
ten thousand tanners, the so-called Liberty Ships. Towards the end of the war. these were
being built at the rate of about three ships a day in North America to replace losses caused
by submarine attacks. Liberties became available at knockdown prices just as the freight
markets started to soar with the demand for grain and coal, especially in war-torn north-
west Europe. It was said that some of these ships covered their purchase cost in their
first voyage under their new private ownership. Liberty ships lasted far longer than was
originally predicted- they were designed to be "expendable". They were followed by various
attempts at "Liberty-replacements" which tended to be 14000 tonner tweendeckers. One of
the most famous was the UK-built the SD14 (Standard Design 14,000/14 knots) and a few
of these may still be afloat today. There was a lot of over-ordering of these ships at the time
and several Owners (and several finance companies) suffered when the market inevitably
slumped.
Such calamities in no way daunted the shipowning Greek families and it is the sons and
grandsons ofthose 1940s risk-takers who provide much ofthe tonnage that fulfils the chartering
requirements of the dry-bulk merchants and provide a significant proportion of the second
hand purchases and sales of this class of ship. Nor are the Greeks confined to London, there
is a similar community in the New York area and, of course, many of them now operate out of
their own country since the Greek government adopted a more pragmatic taxation approach
to the people who specialise in the industry at which Greeks excel - shipowning.
Grain Charterers are also big players in the dry-bulk markets and they tend to depend
more upon single voyage or short-term charter because although the basic demand is highly
predictable, the merchants constantly seek the lowest grain prices which affects the favoured
loading area. Thus the individualistic Shipowners tend to dominate this market.
Tankers. Chapter one explained how many different types of ship fall under this heading,
from Ultra-Large Crude Carriers (ULCCs) to small highly specialised chemical tankers.
The crude oil market is, of course, dominated by the oil companies. The "oil majors"
including, for example, such multinationals as Exxon, Shell, BP etc. all have considerable
fleets of tankers themselves. In the period in the mid-twentieth century their tendency
was to own or have on long-term time charter, large enough fleets to cover their average
requirements and so they seldom had recourse to the "spot" market. More recently, their
tendency has been to slim down the balance sheets of their ship owning divisions by actually
owning barely enough to cover their minimum requirements. This has resulted in an active
chartering market with very many of the ships being owned by entrepreneurial Shipowners.
So extensive has the community of independent tanker Owners become that they have their
own international association INTERTANKO which is so well established that it produces its
own standard form of charter party. Incidentally, entrepreneurism is by no means confined
to the shipowning side because oil traders are a significant element among Charterers of
crude carriers.
The next type of tanker in size terms is the product carrier. You will have read in your
Shipping Business text how, since shortly after World War Two, the oil companies have
operated on the basis of establishing their oil refineries close to the points of consumption
rather than close to the points of crude oil production. Once the crude oil has been broken
down into its many different parts in the refinery, those products which are not distributed by
pipeline or land transport, become available for transport in ships of many sizes depending
upon the product and the consumer.
As with crude oil, the oil companies have their own fleets to cover the movement of products
within their own organizations but there is a wide variety of buyers of refined petroleum
products as indeed there are several different grades of product. These range from the
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SrliP SAl" E AND PuRCHASE
heaviest of fuel oils such as is used in ships bunkers and oil-fired power stations referred to
as "dirty" cargoes. Those coming under the heading of "clean" cargoes range from the lighter
burning oils such as may be used in domestic heating appliances and vast quantities of diesel
oil for road and rail vehicles. Then, as the grades get 'lighter' one encounters the special
kerosene used to fuel jet aircraft and at the lightest end there is, of course, gasoline (petrol)
for use in automobiles. Some products are not destined to be burnt but are the feedstock -
the raw material - for the production of such things as plastics.
The oil companies sell much of their product on a CIF basis so they are constantly in the
chartering market but a fair proportion of the output from an oil refinery is sold on an FOB
basis so the consumer has control of the shipping.
All this chartering activity demands a wide variety of Shipowners ranging from the arch-
entrepreneurs to the more staid traditional Shipowners who tend to build their fleets of tankers
with particular types of clients in view.
Some of the most valuable products from oil refining are far removed from the simple process
of being burnt; these fall under the heading of chemicals. Whilst the names and nature of
these commodities are outside the scope of this course, the ships themselves are very much
more sophisticated than those used for products intended for combustion. Many chemicals
are either capable of eroding steel or will be contaminated by contact with steel. This demands
that the tanks have to be coated with a chemical resistant material and these vary according
to the types of cargo intended to be carried.
The Owners of these highly specialised ships are themselves specialists and any S & P
Brokers contemplating becoming involved in this market will have to be just as specialised.
Most of the more sophisticated chemical carriers are built to the operators' own stringent
specifications so that any S & P activity is likely to be concentrated in the newbuilding
markets.
9.4 GENERAL PURPOSE SHIPS

There are no defined areas in the market for what are still the genuine "tramps" of the shipping
world. Most Owners in this market are relatively small as compared with the multinationals
in the specialised markets and many of the potential Buyers and Sellers have their decision-
taking under the control of an individual. It is this market where one also finds most of the
trade in ships that have had several Owners and the next stop is likely to be the breaker's
yard. For sheer interest and variety rather than the high stress of the high reward markets,
this is the one to be in.
9.5 SMALL SHIPS

The so-called small ship market has changed a great deal over the years. At one time a
2500 coaster after its life carrying coal round the British coast would find a ready market
among those Owners trading within the Mediterranean. Now the small ship market is probably
dominated by ships used in the container feeder trade.
Some of the traditional markets for small ships remain virtually unchanged, in particular those
serving the vast amount of inter-island traffic in south and south-east Asia.
'Small' also includes such craft as fishing vessels, barges, tugs and other specialised vessels.
The word 'specialised' is the operative one because it stands to reason that a small ship
equals a (relatively) small price which equals a small commission. One should not, therefore,
'play' at it. For a Broker who is normally seeking to sell or buy bulk-carriers or even general
purpose tramps, to break off and become involved in negotiations for the sale of a ship in the
low thousands of tonnes is a waste of the most valuable resource- time.
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THE MARKETS AND THE PARTIES INVOLVED
Having said that, there are several Brokers who do specialise in the small end of the market.
They simply work on the basis that their throughput of sales has to be much higher to earn
the same income. This is helped by the fact that sales of small ships tend to take a far shorter
time in the negotiation and because their voyages are far shorter, the time between signing
the saleform and delivery is proportionately less.
9.6 PASSENGER SHIPS AND FERRIES

Large passenger liners designed to carry people from one place to another across oceans
have long since given way to the air lines but their place has been taken by cruise ships.
Cruising started its present boom during the last quarter of the twentieth century and the
major operators (rather like their counterparts in the container world) are constantly seeking
to build bigger and better cruise ships. These are brought into service long before the ships
they are replacing have ended their useful life which has created a thriving S & P market in
secondhand passenger ships.
A similar situation is seen in the passenger ferry market. As more people take their vacations
in other countries and wish to take their automobiles with them so the major ferry operators are
encouraged to acquire larger, more sophisticated ships. The same trend can be seen among
vehicle ferries with the steady increase in the use of road transport for smaller consignments
of cargo. Redundant ferries from north-west Europe can usually find a ready market among
the operators of inter-island services in South and South-East Asia.
Brokers dealing in passenger carriers need extra skills in dealing not so much in deadweight
tonnes or teus but in passenger accommodation. Not just in numbers of berths but in
description of the cabins; what passes for first class in one Owner's mind may be considered
steerage in another's- and vice versa.
9.7 OBSOLETE TONNAGE

By the way, avoid a frequently encountered mistake. 'Obsolete' means no longer in service
whilst 'obsolescent' means old and out of date but still in service. But obsolete is usually the
term used to describe ships intended for the demolition market.
In Chapter Six you learnt how ship-breaking is a somewhat crude industry and tends to
flourish in those areas where the cost of living is low so that wages are commensurately low.
Thus many buyers of ships for demolition will be found in parts of the Indian sub-continent,
south-east Asia and the Far East with China a major player.
In addition to the factors influencing the demolition market which were referred to in Chapter
Six, S & P Brokers need to keep a watch on external influences. The governments of both
India and Pakistan want their share of the demolition market and so impose import duties on
ships bought by their ship breakers. The level of this tax changes from time to time and will
inevitably have an effect on prices being offered.
Another external influence comes from the environmentalist lobbies, particularly Greenpeace.
9.8 WHO SHOULD AN S & P BROKER KNOW?

First, obviously, the Broker's own Principals. This is not so easy as in, say, a chartering
context where one's Principal tends to have a repetitive need to be in the market; a Shipowner
needs a constant supply of cargoes and a charterer a constant supply of ships. Most Buyers
and Sellers of ships acquire ships in order to operate them and only dispose of them when
circumstances make it necessary to do so.
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SHIP SALE' AND PuRCHASE
Lucky indeed is the S & P Broker who acts for a Principal who looks upon ships themselves as
the trading commodity and only seeks employment for them in order to have them profitably
engaged whilst waiting for the right market conditions to enable them to be sold at a profit.
As well as knowing the Principals, it is necessary to know how each Buyer operates; one
needs to identify the DMU - the decision-making unit. If dealing with an entrepreneur, then
it is likely that the decision-maker will be the direct link but if the Principal is a large limited
company, contact is likely to be with a subordinate and the larger the organisation, the greater
number of people between the contact point and the final decision. This chain of executives
between Broker and decision will be even longer if the Principal is a member of a shipping
pool where other pool members may have to be consulted before negotiations start in earnest.
The same problem arises if the buying Principal is a finance house which buys for bare-boat
charter to the actual user of the ship.
Similar constraints will apply if the Principal is the Seller where the entrepreneur will possibly
give a response right there on the 'phone but the big company man will need to consult
colleagues before providing a response. Further complications arise if the ship is to be sold
with an existing chartering commitment because the Charterer will have to be a signatory
to a tripartite agreement and will, therefore have to be consulted.
Another important difference among Principals is the attitude to Brokers. Some will lean
heavily on the Broker's advice as to terms to be agreed or to be amended during negotiations
and will also expect guidance from the Broker as to what is or is not a fair price. At the other
end of the scale are Principals who will require no more from the Broker than that of a dealer,
transmitting their instructions and reporting back the replies. And, of course, various shades
between these two extremes.
Almost as important as knowing one's potential Principals one needs to know other S & P
Brokers. With the possible exception of sectors of the newbuilding market, it is the rule rather
than the exception for there to be a Seller's Broker and a Buyers Broker, and occasionally
intermediate Brokers.
By 'know' in this context one means knowing what type of buyer/seller/ship type that Broker
specialises in as well as knowing the reputation of those Principals and - by extension - the
reputation of the Broker. The reputation of the Broker is especially important when dealing
in ships for demolition because it is difficult for a Seller's Broker to recognise and know the
standing of the very many ship breakers. The same safeguard applies when the buyer is a
small enterprise in a remote part of the world.
S & P work, like so many branches of shipping business, depends so heavily on person-to-
person contact so that 'knowing' is important in the usual sense of having friendly personal
links with fellow Brokers.
Then during the course of negotiations, especially towards the end, there are a host of people
to which the S & P Broker may have to refer in some haste. Documents may need to be
notarised, that is by an independent professional person whose signature and seal confirms
the validity of a signed document. Such a person specialising in this work in many countries
is called a notary public whilst in others, this duty is performed by a lawyer.
Knowing how to reach the consulate of any country and the representative of its shipping
registrar as well as the local office of every Classification Society is an essential part of the
S & P Broker's armoury of contacts. The role these officials play will be covered in the next
Chapter.
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THE' MARKETS Ar"8 THE PARTIES IWOLVED
9.9 WHAT SHOULD AN S & P BROKER KNOW?

An S & P Broker is only as good as the data in the office which is instantly available. Some of
this has to be in the Broker's head so that a knowledgeable response can be given to the first
approach by a potential Principal. Very shortly after that response the Broker must be able
to provide details of suitable ships within the range of interest of the Buyer and whether the
Principal is Buyer or seller, the Broker must have at his finger ends, the sort of prices being
paid for such ships as are the subject of discussion.
It goes without saying that an S & P Broker's office needs a remarkably comprehensive store
of easily accessible data for which the computer is ideally suited. However, a computer is
only as good as the data fed into it so a staff dedicated to keeping that data right up to date
is indispensable.
Finally the Broker must know the market, the price of ships depends of course upon supply
and demand; it is, however, vital to know what circumstances affect that demand. These
range from the immediate factors such as the current prices being paid for second hand ships
all the way up to the view expressed by (believable) economists as to the state of the world
economy in the more distant future.
Maintaining a watch on the chartering markets is almost as important as the S & P market
itself because signs of firmness or weakness of a general nature as opposed to temporary
blips will inevitably influence the views of Buyers and Sellers of ships.
Unusual events particularly wars (if these can be termed 'unusual' today) can radically affect
demand for ships, often on a regional basis. Political unrest short of actual conflict can be a
factor. Similarly a sudden shift in demand, such as the discovery of oil reserves can trigger a
demand which may be local or widespread depending upon the magnitude of the discovery.
All these factors may have to be drawn upon from time to time if one's Principals expect
written market reports to be prepared. Skill in reading and understanding reports made by
others, especially statistical summaries prepared by official bodies, is a necessary quality.
Finally, reverting to the anecdote at the beginning of this Chapter, knowing the psychology of
one's Principals is probably the most important skill of all.
9.10 TEST QUESTIONS

Having completed Chapter Nine, attempt the following and submit your essays to your
Tutor.
1. One of your Principals, who owns a fairly small fleet of general-purpose tweendeckers,
now feels he would like to be part of the container shipping world. Within his fleet are two
elderly 14,000 tonners he could dispose of. Using a country of domicile and nationality
of your choice for your 'Principal', draft a letter to him with your suggestions as to how he
might proceed.
2. Draft an internal memo to a new subordinate detailing what you expect to be able to
obtain quickly from the computer system he is devising for you.
95
Chapter 10
DOCUMENTATION AND SHIP VALUATION

10.1 PART ONE- DOCUMENTS AND PROCEDURES ON DELIVERY
The transfer of a ship from one Owner to another is often a time of tension for the S & P
Broker. This is not a simple matter such as buying a car where the buyer hands over cash or
a certified cheque and the seller gives in exchange a couple of documents and the keys of
the new acquisition; all taking place in one location without a lawyer in sight.
With the transfer of a ship from Seller to Buyer there are many more documents involved,
the several parties concerned may be in different parts of the world, many miles and possibly
several time zones apart and finally the amount of money involved is considerable. Add to this
the fact that lawyers will probably be involved and their role is to ensure that the exchange of
the money and the ship is simultaneous; they are paid to work on the unhappy Principle than
no one can be trusted.
Apart from the legal, financial and bureaucratic elements concerned, the very human
element, namely the old and the new crews must not be overlooked. The Brokers may well
be obliged to play a part in ensuring there is no problem in the changeover although one
hopes that much of this work will fall to a port agent.
A well-rehearsed drill is vital for this procedure and it is a matter in which the S & P Broker
should be prepared to play an active part when called upon to do so. It must be remembered
that much of the work will be the responsibility of Lawyers acting on behalf of Buyers and
Sellers together with Notaries Public but the S & Purchase Broker must understand the
procedure and protocol for delivery because the Broker may well be the one to ensure that
everyone concerned and every piece of paper is in the right place at the right time.
Having a check sheet for handovers is a useful tool in any S & P Broker's office. Incidentally,
outmoded though it now is for most braking work, the telex is still considered by some to be
valuable at the time of a handover because of the security the answerback code provides.
Have Appendix 11 to hand and refer to its Clause 8 which deals with documentation. There
are several documents that are peculiar to the hand over process, these include:
Bill of Sale This is the document of title to the ship. Once executed - notarially attested and
legalised by the appropriate Consul when necessary- it is the document that hands the ship
over from the Seller to the Buyer. In order to register the ship, the new owner has to produce
evidence of title, thus the Bill of Sale is probably the most important document at time of hand
over.
An example of a Bill of Sale will be found in Appendix 16
Deletion Certificate If, as is often the case, the Buyer will be registering the ship under a
different flag from the seller's, a certificate confirming that the ship has been deleted from the
seller's flag has to be presented to the registrar of the Buyer's flag. On occasions the actual
Deletion Certificate is not actually available at the time of hand over. In such a case the sellers
have to produce a signed undertaking to present it as soon as possible; such an undertaking
will probably also have to be notarially attested and legalised by the Consul.
Board Resolution Readers will recall reference being made in their law studies to 'ostensible
authority' when it was pointed out that, even within a company, different levels of management
have different degrees of responsibility and authority. The Buyers obviously want to be sure
that the person in the seller's office has authority to sell such a large capital item and this is
97
achieved by the production of a certified copy of a Board of Directors Resolution confirming

the decision to sell the ship concerned. This certificate is usually signed by the Company
Secretary (or his/her equivalent) then notarially attested and legalised.
Just the same type of certificate must be prepared by the Buyers showing authority to
purchase the ship.
In addition to these certificates it is customary for the persons authorised to sign the various
documents on both side, at the completion site and on board the ship itself.
To have their companies' Powers of Attorney which again have to be notarised and legalised
by the appropriate Consul.
Protocol of Delivery and Acceptance This is a very simple but vital document showing the
seller's name followed by the words:
"hereby deliver on (day, month, year) at (hours) the ship described below"
This is followed by the identity of the ship namely name, flag, call sign and official number.
Then the Buyer's name is spelled out, followed by a statement reading:
"pursuant to the Memorandum of Agreement dated (day month year) made between
Sellers and Buyers and Buyers hereby accept delivery of the ship described above"
Then both representatives sign the document which is the moment that ownership transfers.
At the time of handover

Let us assume the following:
1. A ship has been sold with delivery in Nagasaki on the 1Oth April 2005.
2. Payment for the vessel where the hand over officially takes place will be in New York.
3. The sellers's office is in Lausanne, Switzerland.
4. The ship under her new Owners will fly the Greek flag.
5. The ship shall be delivered mortgage free but the Buyers will register a mortgage on
delivery.
The broker's check sheet could look something like this (each party's telephone fax and telex
numbers would be noted against the names):
DATE OF CLOSING Estimated for the 1Oth April 2005
PLACES AND TIMES OF CLOSING
1. NewYork at Greek Consulate 9.30 am local time

2. Lausanne - Sellers at office of Swiss Maritime (sellers) 3.30 pm local time
3. Nagasaki - Seller's broker at Matsumoto & Co 11.30 pm local time
ATTENDING THE CLOSING

Telephone numbers are those where representatives can be reached before closing date:
1. IN NEW YORK
For Swiss Maritime (Sellers) MrASchmidt
For Posidonia Maritime (Buyers) Mr A Pericles
For Hellenic Trustee Bank (Buyer's banker) Mr P Guy
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DocuMENTATION AND SHIP VAcuATiON
2. IN LAUSANNE
Swiss Maritime (Sellers) Mr P Favre
3. NAGASAKI
Swiss Maritime (Sellers) MrAGeorges
Posidonia Maritime (Buyers) Mr D Dimitria
Then the closing procedure would be arranged as follows:
At the time of closing two lines will be open. One between New York and Lausanne and
the other between New York and Nagasaki so that exchange of documents, payments,
registrations, etc. will be effected simultaneously.
Alternatively if Sellers agree only one telephone link between New York - Nagasaki may
be opened and as soon as closing is completed then advice shall be given to Sellers in
Lausanne in this regard.
With the vessel being ready for hand over and with the telephone link between New York and
Nagasaki open, the Seller's and Buyer's representatives in New York will receive confirmation
from their counterparts in Nagasaki that the vessel is ready for delivery and that they have
checked all the necessary documents are on board. These will include vital items such her
Tonnage Certificate, Plans, Suez and Panama Certificates plus a host of trading certificates
which include:
International Load Line Certificate, Cargo Ship Safety Construction Certificate, Cargo
Ship Safety Equipment Certificate, De-13atisation Exemption Certificate, Life Raft
Inspection Certificate, Cargo Record Book, Cargo Gear (derricks/cranes) Inspection
Certificate, Radio Licence, International Oil Pollution Prevention Certificate, Minimum
Mandatory Safe Manning Certificate, Stability Information.
If the ship were a tanker there would have to be pipe-line layouts, pumping rates, and the gas-
free certificate. If a dry-cargo ship then the grain and bale cubic capacity records. Also copies
of the log books and certificates covering the various surveys the ships has to undergo.
The Sellers will have provided the certificate of no mortgages or other encumbrances as well
as the deletion certificate from the Swiss registry. They will also have provided a proof from
the Classification Society confirming that the ship is in class and noting any recommendations
(these will already have been disclosed during negotiations).
The Buyers will have to obtain and provide to the Greek registrar the appropriate class
certificates.
The Buyer's bank in New York will hand over a draft for the full purchase price less the ten
percent deposit (and less address commission if any). The Buyers will provide a letter to
the bank in which the deposit is lodged releasing the deposit to the Sellers less any bankers
charges and plus any accrued interest.
When all is agreed as being in order, the Buyer's and Seller's representatives in Nagasaki will
be authorised to sign the protocol of delivery and acceptance.
Variations
The forgoing was simply an example because circumstances will vary and procedures will
differ according to flag and nationality of Buyers and Sellers.
Whilst not necessary in the example above where the deal was between a Greek Buyer and
a Swiss Seller some countries may demand that the Seller obtains an Export licence before
99
a ship may be sold; in some rare cases there may be a prohibition on sales to certain other
countries.
Similarly some countries insist upon ships bought by their nationals for registration under the
country's flag that an Import licence is obtained. The S & P Brokers will have established
whether these are necessary at time of negotiations but the certificates themselves have to
be presented for scrutiny by the parties or their lawyers at time of delivery.
On occasions the Bill of Sale has to be executed in two originals, the second one marked
"second original".
It may be necessary to provide a commercial invoice stipulating the sale price of the vessel.
This document must state that it is a commercial invoice and include name of Buyers and
Sellers together with purchase price and date.
Bunkers on delivery
In a previous Chapter the matter of bunkers and lubricating oils on delivery has been
discussed. Unless otherwise agreed, these must be paid for by Buyers after quality and
quantity have been agreed. They must be paid for at the current market price at the port of
delivery. Payment must be made at the same time and place, and in the same currency as
the purchase price.
10.2 PART TWO - SHIP VALUATIONS

Introduction
It is part of an S & P Broker's daily function to estimate the value of any ships in which he or
she becomes involved; that is all part of "knowing one's market". Some Brokers undertake to
provide valuations on an official basis.
Who needs an official valuation?

No one is prohibited from seeking a formal valuation of a ship providing they are willing and
able to pay the appropriate fee. Among those who are likely to seek valuations include:
Lawyers and arbitrators are probably the most frequent users of ship valuers' services
because the market value of a particular ship at a particular time may be essential evidence
in a dispute.
An independent valuation of a ship (or several ships) may be needed during company
takeover negotiations.
The Inland Revenue Service may need to have a ship valued if it was substantially owned by
an individual who has died and the amount of Inheritance Tax has to be calculated.
Banks and auditors may need an up-to-date valuation in order to re-assess the asset value
of a company.
Average adjusters need an accurate value of a ship at the time that the General Average
sacrifice took place.
Those involved in a Salvage Arbitration have to know the value of a salvaged ship before
calculating the amount to be paid to the salvors.
Perhaps the most delicate situation is when a Government department seeks a valuation
because of an allegation having been made of illicit dealing being involved in the sale or
purchase of a ship.
100
DOCUMENTATION AND SHIP VALUATJO'J
The basis of valuations

It is important at the outset to stress that ship valuers are seldom, if ever, also ship surveyors.
Thus a valuation is invariably made with no inspection of the ship itself or its records. It is
based entirely on the premise that the vessel is in sound condition, charter-free and that it is
based upon a willing Buyer and a willing Seller.
Although ship valuation can never be a precise art because of the many variables, the valuer
must provide a figure that would stand up to examination in a court of law as a ship valuer can
be- and often is- subpoenaed to give evidence before a court or an arbitration.
There are several ways of valuing ships and no two Brokers will use the same methods but
the following guidelines should be common to all, if not in detail then in principle.
A ship is worth what she can earn on the oceans of the world and therefore ship values vary
according to the vagaries of the freight market and the availability of certain types of tonnage,
able to take advantage of the prevailing market at any given time.
The first task of the valuer is therefore to establish the value of the vessel per deadweight ton
which should offer no problems because keeping records of ship sales is an essential part of
the S & P Broker's armoury.
Let us assume he has been asked to value, as of a given date, a bulk carrier of 35,000
tons deadweight built in Japan in 1985. The valuer must first of all look at other similar type
vessels sold or currently offering for sale at about the time in question. In this case, let us
assume there was a similar bulk carrier sold for US $8,750,000 which was built in Japan
in 1983 and which had a deadweight of 32,409 tonnes. One can thus calculate that the
sold vessel obtained US $270 per deadweight ton (US $8,750,000 + 32,409). If one then
multiplies the deadweight of the ship to be valued (35,000 tons) by US $270 one obtains a
value of US $9,450,000.
To that initial figure one can/would add or deduct any features which might favour one ship to
the detriment of the other. For example, differences in age, type of gear, make, type and size
of engine, place of build etc. In the case in point, the ship to be valued was two years younger
therefore on the "5% per annum rule" one could would add 10% to US $9,450 and obtain a
figure of US $10,395,000.
The 5% per annum rule, applied for differences in age, is based on the assumption that the
life of the average ship is 20 years. This is a very rough guide because different types of ships
and different states of the market may dictate a much shorter life-span for certain types of
ship which would produce a proportionately higher annual depreciation rate.
The important rule is, of course, always to compare like with like i.e. tankers with tankers, dry
cargo tween-deckers with dry cargo tween deckers, bulkers with bulkers and so on.
Brokers and owners have preferences for shipyards and countries of build. Some would
consider that a ship built in a north European yard would be preferable to a ship built in
a Far East yard and would make an allowance accordingly. Type of gear is an important
consideration and in comparing one bulk carrier with another bulk carrier, it is essential to
establish the type of bulk carriers which are being compared, whether geared or gearless and
the type and quality of gear i.e. derricks or cranes.
Size of engine is important and also type of engine. Here again, individual preferences and
perhaps prejudices may influence a valuer's judgement but it is important to compare like with
like. For example a valuation comparing a vessel with a turbine engine cannot be compared
exactly with a ship having diesel propulsion.
Valuers will allow a differential when comparing the speed of ships. Thus, a vessel having a
service speed of 14 knots would have an advantage on the overall price when compared with
101
a ship having a service speed of 13 knots. Applying such a differential becomes morerelevant
and important in the case of fast vessels such as container ships and reefers.
Whilst, when presenting a valuation the only information given is the estimate of value, the
valuer must always keep in mind that when giving a valuation, that it could be challenged in
a court of law when the valuer will be interrogated by learned counsel who will endeavour to
find flaws in the arguments. A valuation should, therefore, never be given until the valuer is
satisfied that he or she has a logical and well marshalled argument with all the facts available
to back his case.
A valuer presents himself as an expert thus an allegation of a false or misleading valuation,

although probably falling under the legal heading of "innocent misrepresentation", could
have most unfortunate consequences. A valuation by one of the leading S & P Brokers was
challenged a few years ago and the plaintiffs succeeded in their claim that the valuation was
totally incorrect with most unfortunate consequences.
It is vital that the written valuation presented to the client clearly identifies the ship in question
and the period for which the valuation is valid. It should then include all the necessary caveats
regarding no physical inspection of either the ship itself or the classification society records
and that it is an opinion of the market for the period stated and should not be taken to apply to
any other date. For good measure it should conclude with the warning that anyone intending
to rely on the valuation should satisfy himself about the physical condition of the ship.
Except perhaps in the case of valuations for a loyal Principal, valuers will, of course, charge a
fee for their services, the fee depending on the amount of work involved. In most countries the
competition laws prohibit the publishing of any form of scale of charges. However, valuers are
first and foremost Brokers and "knowing one's market" is the essential quality of any Broker
worthy of the title.

1. Who signs the Protocol of Delivery and Acceptance?

2. Why are Board Resolutions considered necessary?
3. What role does a Notary Public play?
4. Who gets the interest on the ten percent deposit?
5. What is the reasoning behind the "5% per annum rule"?
6. What types of clients seek the services of a ship valuer?
7. Why might the Inland Revenue Service seek a ship valuation?
Having completed Chapter Ten, attempt the following and submit your essay to your Tutor.
1. A Panamanian ship is being sold by a United States domiciled owner to a Greek Buyer
with delivery in Piraeus and payment in London. Discuss the arrangements necessary
for payment and transfer of ownership.
2. You have to give a valuation on a 1988 Korean built 100,000 tonne British owned tanker
and the only similar sale around the period in question was a 1990 Japanese built
150,000 tonne Greek owned tanker. What factors will you take into consideration when
making your valuation?
102
Appendices
CONTENTS
Appendix 1 Ship Profiles 105
Appendix 2 General Arrangement Plan 126
Appendix 3 British Registration Certificate 127
Appendix 4 History of Flags of Convenience 129
Appendix 5 Lloyd's Register Abbreviations 130
Appendix 6 Lloyd's Register Column Headings 132
Appendix 7 Copy of a Lloyd's Register Page 133
Appendix 8 Copy of a Germanischer Lloyd Page 134
Appendix 9 Copy of a Bureau Veritas Page 135
Appendix 10 Norwegian Saleform 1987 136
Appendix 11 Norwegian Saleform 1993 141
Appendix 12 Nipponsale 1999 148
Appendix 13 BIMCO "Salescrap" 151
Appendix 13A DEMOLISHCON 156
Appendix 14 "Fairplay" Market Report 162
Appendix 15 Lloyd's List Market Report 163
Appendix 16 Bill of Sale 164
103
APPENDICES
APPENDIX 1
Ship Profiles
Tanker
Oil tanker
Chemical tanker
\.. /
Liquefied gas tanker
105
APPENDIX 1
Ship Profiles (Continued)
Liquefied gas carrier
Fruit juice carrier
106
APPEN:>ICES
APPENDIX 1

Bulk carrier
With
self-discharging
arrangement
'--------"
107
APPENDIX 1

Ore/bulk/oil carrier
Ore/bulk
108
APPENDICES
APPENDIX 1

Ore carrier
Ore/oil carrier
109
APPENDIX 1

General cargo ship
17
[ J
General cargo ship
Qjl I I
'cTI
D
General cargo ship
!
kl Jl11? 1? ·17 II
110
APPENDIX 1

General cargo ship
\ I l
Ro-Ro Ro-Ro 1--1-+-1---1 Ro-Ro
Bulk Containers
General
111
APPENDIX 1

Refrigerated cargo ship
Container ship
112
APPE"JDICES
APPENDIX 1

Ro-Ro cargo ship
I I
' ./
Ro-Ro cargo ship
I I ..1
'
113
SruP SALE AND PuRCHASE'
APPENDIX 1

Ro-Ro cargo ship
Ro-Ro cargo ship
Train ship
I 0 \ ....----rJ ~
114
APPENDICES
APPENDIX 1

General cargo/passenger ferry
Vehicle passenger ferry
115
APPENDIX 1

New vehicles carrier
.. ..
' ./
!
~
;z 1I(
I
I
~
116
APPENDIX 1
Nuclear fuel carrier
!
' I I
I
I
D
Livestock carrier
t
~I. . .J. -[\_i~.-. - : :_!'SI_· ·· _: ': : : _. . :=: . . .Q~f_ _._ l- ~. .,_.,1
(
Livestock carrier
117
SrliP SALE AND PuRCrlASE
APPENDIX 1
Fishing vessel
Trawler
I D=--J ~c r
Stern trawler
Fish factory ship
~
[
I
i
Whale catcher
c-·
118
APPENDIX 1

Offshore supply ship
Offshore support ship
(Trencher support)
Offshore well production ship
..,c.-
cfjl 8
1,1 I
I
I
I
(
I'
Drilling ship
Pipe laying ship
119
Sf-liP SALE AND PuRCf-lASE
APPENDIX 1

Crane ship
Cable ship
Ice breaker
Tug
Pusher tug
120
APPENDIX 1

Dredger
(Grab)
Hopper dredger
(Cutter suction)
Hopper ship
Sludge carrier
\
v E ,.
I
Incinerator ship
\
f\ B A ( I I 7
121
SrltP SALE AND PURCHASE
APPENDIX 1

Landing craft
Deck cargo ship
l I IJ
122
APPENDIX 1

Deck cargo ship
!
I I
Semi-submersible deck cargo ship
123
APPENDIX 1

Heavy lift cargo ship
Semi-submersible heavy lift cargo ship
'\1 17
124
AOPEN DICES
APPENDIX 1

Barge carrier
[ [
\... ./
Semi-submersible barge carrier
f.- f.-
....;:
I I 7
125
Sf-liP SALE AND PU'1CHASE
APPENDIX2
General Arrangement Plan
126
APPENDIX3
British Registration Certificate
•
('*J
.....,.., ~~'
CERTIFICATE OF BRITISH REGISTRY
The Merchant Shipping Act 1995

The Merchant Shipping (Registration ofShips) Regulations 1993. as amended
PARTICULARS OF SHIP
Same 0/ Ship YVONNE TEST (0~

Oflicial Xumher 900078 ©~~"Calls,,,
/JfO ,\'umber.·· IllS l t::=::>@~ fort CARDIFF
T1pe O(Shif' P~ YACHT
.\fl.'llwd or Pmpulsion SAIL & MOTOR
t:n~ine Make & Jfmlcl VOLVO PENTA
33.57
kll' ~
24.00
3.00
,::::·• ©J~~adlh 4.00 metre.~
Gross Tmmagc 34.00 ~<!!11?) Nel Ton..,ge 23.00
0.00
h·ar r~{ Build 1997
Xame ( )( fluihkr DAWKINS & DREW
Counlly o!lluild
Ill 15:03:12
This Cen(ticat.: t!Xf>ires on 6 September 2004
S(I!.IU'<L ........... ............. .
l·ilt and on behalf of the Registrar,< icncta! of ~hipping and S.:arn~n
112
127
SHIP SAcE AND PuRCHASE
APPENDIX3
British Registration Certificate (Continued)

For the purposes of registration there are 1>4 ~hares in a -;hip
"\arn.: and addre~s ofO\\IlCih) No of shares
IMWKI.\'S & DREW DL!.lHirADDRESS

IJAWKP~S Jl()l'SE, DAWKIX\' STREt:T. LLA:\'DAFf: CARf)JFJ-; Cni JTC 11/U.ES
IMPORTANT INFORMATION
• A Certificate of Registry ts not pmof of()\\ ncrship

• Details of registered mortgages arc not shmvn.
• of any clitlllfJI!.~ ttl tfie .~fa]l.<: JMrticu(Jrs t'~ ~

• !f tfit r•cssd t.'i fost. 'e)
• The ccriticate must be surrendered to the Registry if the ship ceases to be a British registered ship.
• A duplicate must be obtained if the certificate is lost or becomes illegible.
• For further infonnation contact the
Registry Of Shipping And Seamen

PO Box 165
Cardiff
United Kingdom CFI4 5FU
Telephone: 029 20747333
0/·l'll?r\lr\ I 01 Till:!:\ i'IRIJY\!i \ f
Fax: 029 20747877 7R f \Sl'ORl I\ f) Rft<IO\ \
212
128
APPENDIX4
History of Flags of Convenience

A BRIEF HISTORY OF THE DEVELOPMENT OF OPEN REGISTRIES
Period Flag of Registry Motivation
16th Century Spanish English merchants circumvented restrictions
limiting non-Spanish vessels from West Indies
trade.
17th Century French English fishermen in Newfoundland used French
registry as a means to continue operation in
conjunction with British registry fishing boats.
19th Century Norwegian British trawler owners changed registry to fish off
Moray Firth.
Napoleonic Wars German English shipowners in Massachusetts changed
registry to avoid capture by the British.
1922 Panamanian Two ships of United American Lines changed from

US registry to avoid laws on serving alcoholic
drink aboard US ships.
1920-1930 Panamanian/Honduran US shipowners switched registry to reduce

operating costs by employing cheaper shipboard
labour.
1930s Panamanian Shipowners with German registered ships

switched to Panamanian registry to avoid possible
seizure.
1939-1941 Panamanian With encouragement from the US Government,

shipowners switched to Panamanian registry to
assist the Allies without violating the Neutrality
Laws. European shipowners also switched
to Panamanian registry to avoid wartime
requisitioning of their vessels.
1946-1949 Panamanian More than 150 ships sold under the US Merchant
Sales Act of 1946 were registered in Panama -
as it offered liberal registration and taxation
advantages.
1949- Liberian Low registration fees, absence of Liberian taxes,
absence of operating and crewing restrictions
made registry economically attractive.
1950 to present Many FOGs As registration in the developed world became
increasingly costly and restrictive, many
shipowners turned to open registers.
129
SrtiP SALE AND PURCHASE
APPENDIX 5
Lloyd's Register Abbreviations

Abbreviation Column Explanation Abbreviation Column Explanation Abbreviation Column Explanation
~ 4&7 LR dass character symbol CA 2&5 California elec. 7 Electric
(See Key for full explanation) CAC 4 Crew Accommodation Comfort (LR) EP 4 &6 Environmental Protection (LR)
100 LR dass character figure CASPPR 4 Canadian Arctic Shipping Pollution Eq.Ltr 4 Equipment Letter (LR)
(See Key for full explanation) Prevention RegJations ER 5&6 Engine room
iJ< LR dass character symbol CST Clean Ballast arrangements ES 4&6 Enhanced Scantlings (LR)
(See Key for full explanation) cc China Classification Socety ESN 4 Enhanced Survivabiity Notation (LR)
A LR dass character letter cesar Centralised Control System {LR) - ESN- Notation assigned to a ship that has
(See Key for full explanation) (CCS) (See Key for lUI explanation) Hold 1 been assessed for flooding No.1
LR dass character fiQLfe ccy Conical cytin<iical hold and complies with or has
(See Key for full explanation) Ceii.Ho. Cellular hold f1tted with fixed cellguldes been strengthened to comply with
LR dass character symbol CG 4 Cargo gear on ships {LR) the requirements of the relevant LR
(See Key for full explanation) ClrHt 6 Clear height {RoRo ramps & lanes) Rules
N LR dass character letter CM 4&6 Construction Monitoring {LR) ESN- Hold t ,.;111 Loading Notation assigned to a ship that has
(See Key for full explanation) co 2&5 Colorado Restriclions 4 been assessed for flooding No.1 hold
T LR class character letter {Col) 5 Colombia and complies with the requirements
(See Key for full explanation) Comb. or 5&6 Combined of the relevant LR Rules by virtue of
4&7 British Corporation class character symbol comb. 1mposed loading restrictions.
(See Key for full explanation) COW or Crude Oil Washing ESN-AII Holds Notation assigned to a ship that has
A, At, 8', {A), Equipment Letters COW{LR) been assessed for flooding of all
(At), {8') etc. 4 {See Key for full explanation) CP Controllable pitch {propellers or thrusters) holds and corJ1llies with or has been
a or (a) 4,5,6&7 aft CQ 2&5 Chongqing Municipality strengthened to comply with the
a.c. 7 Alternating current CR 4 Cargo ramps {LR) requirements of the relevant LR Rules
ACT 2&5 Australian Capital Territory CR 4 Corrosion Resistant material {LR) ESN-AII Holds with Notation assigned to a ship that has
AB 4 American Bureau of Shipping cs 4 Continuous Survey of the Hull {LR) Loading Restrictions been assessed for flooding of all
AB 2&5 Alberta (Canada) cs 4 Croatian Register of Shipping holds
AK 2&5 Alaska CSD 6 Closed Shelter Deck Ship in Hold(s) No .. and complies with the requirements
AH 2&5 Anhui CT 2&5 Connecticut of the relevant LR Rules by virtue of
AL 2&5 Alabama Cy 7 Cylinders {engine) imposed loading restrictions.
(alu) 6 Aluminium cyt Cylindrical ESP 4 Enhanced Survey Programme {LR)
AR 2&5 Arl<ansas d. c. Direct current Est. 5 Estimated
(Arg) 5 Argentina d.o. Diesel oil ETA Emergency Towing Arrangements (LR)
aux 4, 5 & 7 Auxiliary db Domestic boiler (ex.g) Exhaust gas {boilers)
AuxB Auxiliary Boiler{s) {LR) DB 5&6 Double bottom exp Expansion
{See Key for full explanation) DC 2&5 District of Columbia f or{f) 4,5,6&7 Forward
AuxGen Auxiliary generators dec 6 Double cylindrical conical F-S 6 Finish-Swedish Ice Rules notatton
Al 2&5 Arizona dey 6 Double-lobe cylindrical fcsa 6 Freight container securing arrange-
B Bridge DO Double deck ments(LR)
BB 5 Bulbous bow DE 2&5 Delaware FDA 4&6 Fatigue Design Assessment {LR)
BC 2&5 British Columllia Dght 5 Draught FEU Forty Foot Equivalent Units {contain-
BC British Corporation {LR) Diam. 6 Diameter of manifold ers)
bhp BrakB horsepower Disch. Discharge FJ 2&5 Fujian
(See Key for full explanation) dk or dks 4, 5 &6 Deck(s) FL 2&5 Florida
BJ 2&5 Beijing M~cipality DP{AA) 4 Dynamic Positioning with My redundant FP 4 Flash point (in degrees Celsius) (LR)
Bow/CM Distance from bow to centre manifold automatic control sys1em 1\-RI FP 7 Fixed pitch {propeller or thruster)
BR 4 Bugarian Register of Shipping DP(AAA) 4 D)T\arnic Positioning with fully redll1dant FSWR 4 Flexible Steel Wire Ropes (LR)
Brex 5 Breadth extreme automatic control system and fwd 4, 5 & 7 Forward
Brmd Breadth moulded emergency automatic control system {LR) G1 -B5 4 Ser.<ce Limits {LR)
BS British Corporation class character letters DP{AM) Dynamic Positioning with automatic and GA 2&5 Georga
- {LR) (See Key for full explanation) centralised remote manual control system GO 2&5 Guangdong
btm 4&6 Bottom (LR) Genorgen Generators
BV 4 BlXeau Veritais DP{CM) Dynamic Positioning with centralised GL 4 Gerrnanischer Lloyd AG
BWMP Ballast Water Management Plan {LR) remote manual control system {LR) GS 2&5 Gansu
c Diameter of wrought iron cable in six- DpTa Deep tank GX 2&5 Guangx Zhuang AR
teenths of an inch (BC Rules) Dpth Moulded depth GZ 2&5 Guizhou
c Compound expansion engine dr Double reduction {gearing) HA 2&5 Henan
C. Total carrying capacity of containers OS Deutsche Schiffs -Revision und -Kias- Ha 6 Hatchways
C. Dk 6 Containers carried on deck sifikation GmbH HB 2&5 Hubei
C. Ho 6 Containers carried in hold{s) DSS 6 Double skin sides HCM 6 Hull Condition Monitoring {LR)
C.Ro/Ro 6 Containers carried on internal decks DTorDTs 4, 5 &6 Deep tank{s) HE 2&5 Hebei
C.Ro!RoOk 6 Containers carried on internal decks or DTa HI 2&5 Hainan
(CA) Controlled Atmosphere denotes one or DTf 4, 5 &6 Deep tank forward HI 2&5 Hawaii
more cargo chambers enclosed in an air- DTm 4, 5 & 6 Deep tank midship Hl 2&5 Heilongjiang
tight envelope. {LR) DTma 4, 5 &6 Deep tank aft midship HN 2&5 Hunan
CA Where ship is provided with a Controlled DTmf 4, 5 &6 Deep tank forward midship Ho Dry cargo hold
Atmosphere system which will maintain dwt 6 Deadweight HolTa Hold/Tank{s)
specified ranges of oxygen and carbon econ 7 Economiser {Boilers- LR) Ho{comb) Combined hold
dioxide levels. {LR) e{ex.g) Exhaust gas economiser {Boilers- LR) hp Horsepower
130
APPENDICES
APPENDIX 5
Lloyd's Register Abbreviations (Continued)

Abbreviation Column Exptanatioo Abbreviation Column Explanation Abbreviation Column Explanation
HP High Pressure Liq(Oil) Liquid oil capacity explanation)
HR Hellenic Register of Shipping Lloyd's RMC Refrigerated Cargo Installation aass p 4,5,6& 7 Port
HRS Hull Renovation Scheme (LR) or (Lloyd's (LR)- (See Key for full explanation) PA 2&5 Pennsylvania
Level tSS RMC) PAC 4 Passerger Pammodaloo CanftJt (LR)
HRS Hull Renovation Scheme (LR) Lloyd's aass for refrigerating equpment for PCR Performance Capability Rating (LR)
Levei1SS RMC (LG) dealing with boil-of! gas on a liquefied PCWBT Protective Coatings in Water BaUast
hs Heating slJ'face (boiler.;) or ((Lloyd's gas carrier (L R) - (See Key for full Tanks (LR)
HSC High Speed Craft RMC(LG)) explanation) pd Per day (fuel consumption)
htr Heater (boiler details) LMA 4&6 Lloyd's Manoeuvring Assessment (LR) PE 2&5 Prince Edward Island (Canada)
hvf High viscosity fuel LMCor Machinery aass (LR)- (See Key for Pmprm Pump room
HWH Hot Water Heater (LMC) full explanation) PMS Approved Planned Maintenance
Hz Hertz LN 2&5 Liaoning Scheme(LR)
'I.W.S. Ship arranged for In Water Survey (LR) LNG Liquefied Natural Gas PMS(CM) Approved Planned Maintenance
i.f.o. Intermediate fuel oil Loa Length overall Scheme based on machinery condi-
lA Iowa LP 7 Low Pressure tion mOOtoring (LR)
ISS Integrated Bridge Navigation System (LR) LPG 5&6 Liquefied Petroleum Gas PR 4 Polski Rejestr Statkow
ICC Integrated COfnputer Control (LR) LR 4&6 Lloyd's Register of Shipping pri 7 Prismatic
Ice Class Ice Class Notations fOf general service Lwr or lwr 5&6 Lower PSMR 4 Proplision and Steering Machinery
1', 1, 2 & 3 (LR) m 4, 5& 6 Midship Redundancy (LR)
Ice Class Ice Class Notations for general service M.S. 2&5 Maritoba (Canada) PSMR' Proplision and Steering Machinery
1AS,A, B, (LR) m'lhr 6 Cubic metres per hour Redundancy Located in Separate
C&D MA 2&5 Massacrusetts Machnery Spaces(LR)
Ice Class Ice Class Notations for Arctic and Mchyor 5, 6& 7 Machinery pt 4, 5&6 Part
AC1,AC1-5, Antarctic Service (LR) mchy pv 4 PresSlJ'elvacwm relief valves for
AC2&AC3 MD 2&5 Maryland cargo tanks with positive setting
ID 2&5 Idaho ME 2&5 Maine Where greater than 0.2 bar
IFP Integrated Fire Protection (LR) (Mex) 5 Mexico QC 2&5 Province of Quebec
IGSoriGS Inert Gas System Ml 2&5 Michigan QH 2&5 Qinghai
(LR) MN 2&5 Minnesota OLD 2&5 Queensland
IGSor Inert Gas System MO 2&5 Missrui RC 4 Registro Cubano de Buques
(IGS) (See Key for full explanation) MS 2&5 Mississippi rev Receiver (boiler details)
ihp 7 Indicated horsepower MT 2&5 Montana rec Rectangular
IL 2&5 Illinois N 4 Equipment not required (LR) Recip. Reciprocating engine
IN 2&5 Indiana NSW 2&5 New Sooth Wales ref Ships fitted with refrigerated cargo
ind. 5, 6& 7 lnciudng NT 2&5 Northern Tenitory installation
lnmarsat-A 2 (See Key for full explanation) NAV 4 Lloyd's Navigation Certificate (LR) Ref C. Refrigerated oontainers
lnmarsat-8 2 (See Key for full explanation) NAV1 Lloyd's Navigation Certificate for periodic Retract. Retractable
lnmarsat-M 2 (See Key for full explanation) One Man Watch (LR) Rl 4 Registro Italiano Navale
lnmarsat- (See Key for full explanation) NauxB 7 New Auxiliary Boilers (L R) Rl 2&5 Rhode Island
Mini-M NB 2&5 New Brunswick RN 4 Registrul Naval Roman
lnmarsat-C (See Key for full explanation) NC 2&5 NorthCarolna RoRo Roll on Roll of!
Ins Insulated cargo capacity ND 2&5 North Dakota RP Rinave Portuguesa
IP Integrated Propulsion (LR) NE 2&5 Nebraska rpm Revolutions per minute
IP Intermediate Pressure NH 2&5 New Hampshire RS Russian Maritime Register of Shipping
IR 4 Indian Register of Shipping Ni.s~ 6 Nickel Steel s 4, 5& 7 Starboard
JL 2&5 Jilin NJ 2&5 New Jersey SA 2&5 South Australia
JR Jugoslavenski Registar Brodova NK Nippon Kaiji Kyokai S.dk 5 Shelter deck
JS 2&5 Jiangsu NL 2&5 NeWfoundland & Labrador (s.s~) or s.stl Stainless steel
JX 2 &5 Jiangxi NM 2&5 Nei Menggu (Inner Mongolia AR) SB Single~ed Main Boiler (LR)
Kl Biro Klasif1kasi Indonesia NM 2&5 New Mexico SBP Steady Bollard Pull (LR)
kn Knots NR 7 Nucle,.. Reactor SBT orSBT Segregated Ballast Tanks
KR Korean Register of Shipping NS 2&5 Nova Scotia (LR)
KS 2&5 Kansas NT 2&5 Northwest Terr~ories SBTIPL or Segregated Ballast Tanks
kW 4&7 Kilowatts NU 2&5 Nunavut SBTIPL(LR)
KY 2&5 Kentucky NV 2&5 Nevada sc 4 Service Craft
Lreg 5 Registered length NV 4 Det Norske Veritas sc 2&5 South Carolina
L.S.'O'. 4 Loading Sequence Accelerated (LR) NX 2&5 Ningxia H<JAR sc 2&5 Sichuan
L.S.T. 4 Loading Sequence Normal (LR) NY 2&5 New York State sc. shaft(s) 7 Screw shaft(s)
LA 4 Lifling Appliance (LR) (NZ) 6 New Zealand SCM 4&6 Screwshaft Condition Mon~oring (LR)
LA 2&5 Lolisiana o.f. 7 Oil fuel or oR-fired boiers SD 2&5 South Dakota
Lake SS Periodical Survey of ship classed for Great OBO 5 Ore/Bulk/Oil SD 2&5 Shandong
Lakes Service (LR) OH 2&5 Ohio SDA 4&6 Structural Desgn Assessment (LR)
Lbp Length between perpendiculars OK 2&5 Oklahoma SDSor 6 SOLAS Damage Stability
LDC Light Displacement Craft ON 2&5 Ontario SDS(LR)
Len Length (RoRo ramps & lanes) OR 6 Oregon SEA Ship Event Analysis (LR)
Ll 4&6 Loading Instrument (LR) OSD 6 Open Shelter Deck Ship SEA(HSS) Sea Event Analysis (HUll Surveillance
Liq Liquid cargo capacity OSD/CSD 6 Open & Closed Shelter Deck Ship System) (LR)
Liq(Gas) Liquid gas capacity OU/01 4 LR class character letters (See Key for fUll SEA(R) Ship Event Analysis with Continuous
131
APPENDIX6
Lloyd's Register Column Headings
REGISTER OF SHIPS
, 2 3 4 5 6 7
LR SHIPS NAME TONS CLASSIFICATION HULL CARGO CAPACITIESIHANOUNS MACHINERY
Identity No. Hull LatestSS Data of build Shipbuilders-Place of build Deacrtption of ship No. of Passengers Engines Bore and stroke
recorded
Call Sign Former names Leng1h Breadth Dfaugl11 No. of Holds & lengths/No. of Cargo tanks Total horsepower Type Fuel Bunkers
Gross
Ne1 Overall extrems maximum (1nns)
GrainJUqUid Bale Insulated Heating
Offidal No OWNERS Madlinery
Summer Length Breadth Depth c. ft. c.ft spaces c.ft. coils
Enginebuilders INhere manufacture
Deadw1 BP. moulded moulded
Navigational Managers Refrigerated cargo
Gross No. of Hatchways & sizes
aids instaltation Boilers Halting surface Furnaces
Ne1 Superstructures Decks
Port of Regls1ty Flag
Surrmer No. of Winches Cranes/Derricks
Rive1ed/Weided Bulkheads AJ1erations Aux. electrical generating plant
Equipment NoJSWLtone
Deadwt
letter
Rise of floor Keel Water ballast Special propeners Speed
knots
132
APPENDIX 7
Copy of a Lloyd's Register Page
AM PH ION Register of Ships 2003-2~

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135
APPENDIX 10
Norwegian Saleform 1987 Norwegian Shipbrokers' Association's Memorandum

of Agreement for sale and purchase of ships. Adopted
by The Baltic and International Maritime Council
(SIMCO) in 1956.
Code-name
MEMORANDUM OF AGREEMENT
SALEFORM 1987
Revised 1966, 1983 and 1986
Dated:
hereinafter called the Sellers, have today sold, and
hereinafter called the Buyers, have today bought
Classification:
Built: by:
Flag: Place of Registration:
Call sign: Register tonnage:
Register number:
on the following conditions:
1. Price
Price:
2. Deposit
As a security for the correct fulfillment of this contract, the Buyers shall pay a deposit of 10%--
ten per cent--<lf the Purchase Money within banking days from the date of this
agreement. This amount shall be deposited with
and held by them in a joint account for the Sellers and the Buyers. Interest, if any, to be credited the Buyers. Any
fee charged for holding said deposit shall be borne equally by the Sellers and the Buyers.
3. Payment
The said Purchase Money shall be paid free of bank charges to
on delivery of the vessel, but not later than three banking days after the vessel is ready for delivery and written or
telexed notice thereof has been given to the Buyers by the Sellers.
4. Inspections
The Buyers shall have the right to inspect the vessel's classification records and declare whether same are
accepted or not within
The Sellers shall provide for inspection of the vessel at/in
The Buyers shall undertake the inspection without undue delay to the vessel. Should the Buyers cause such
delay, they shall compensate the Sellers for the losses thereby incurred.
The Buyers shall inspect the vessel afloat without opening up and without cost to the Sellers. During the
inspection, the vessel's log books for engine and deck shall be made available for the Buyers' examination. If
the vessel is accepted after such afloat inspection, the purchase shall become def'm.ite-except for other possible
subjects in this contract-provided the Sellers receive written or telexed notice from the Buyers within 48 hours
after completion of such afloat inspection. Should notice of acceptance of the vessel's classification records and
of the vessel not be received by the Sellers as aforesaid, the deposit shall immediately be released, whereafter this
contract shall be considered null and void.
5. Place and time of delivery

The vessel shall be delivered and taken over at/in
Expected time of delivery:
136
APPENDIX 10
Norwegian Saleform 1987 (Continued)

Date of cancelling (see clause 14):
The Sellers shall keep the Buyers well posted about the vessel's itinerary and estimated term and place of
drydocking.
Should the vessel become a total or constructive total loss before delivery the deposit shall immediately be
released to the Buyers and the contract thereafter considered null and void.
6. Drydocking
In connection with the delivery the Sellers shall place the vessel in drydock at the port of delivery for
inspection by the Classification Society of the bottom and other underwater parts below the Summer Load Line.
If the rudder, propeller, bottom or other underwater parts below the Summer Load Line be found broken, damaged
or defective, so as to affect the vessel's clean certificate of class, such defects shall be made good at the Sellers'
expense to I)
satisfaction without qualification on such underwater parts. 2)

Whilst the vessel is in drydock, and if required by the Buyers or the representative of the Classification
Society, the Sellers shall arrange to have the tail-end shaft drawn. Should same be condemned or found defective
so as to affect the vessel's clean certificate of class, it shall be renewed or made good at the Sellers' expense to
the Classification Society's satisfaction without qualification.
The expenses of drawing and replacing the tail-end shaft shall be borne by the Buyers unless the Classification
Society requires the tail-end shaft to be drawn (whether damaged or not), renewed or made good in which event
the Sellers shall pay these expenses.
The expenses in connection with putting the vessel in and taking her out of drydock, including dry-dock
dues and the Classification Surveyor's fees shall be paid by the Sellers if the rudder, propeller, bottom, other
underwater parts below the Summer Load Line or the tail-end shaft be found broken, damaged or defective as
aforesaid or if the Classification Society requires the tail-end shaft to be drawn (whether damaged or not), in all
other cases the Buyers shall pay the aforesaid expenses, dues and fees.
During the above mentioned inspections by the Classification Society the Buyers' representative shall have
the right to be present in the drydock but without interfering with the Classification Surveyor's decisions.
The Sellers shall bring the vessel to the drydock and from the drydock to the place of delivery at then own
expense.
7. Spares/bunkers etc.
The Sellers shall deliver the vessel to the Buyers with everything belonging to her on board and on shore. All
spare parts and spare equipment including spare tail-end shaft(s) and/or spare propeller(s), if any, belonging to
the vessel at the time of inspection, used or unused, whether on board OR not shall become the Buyers' property,
but spares on order to be excluded. Forwarding charges, if any, shall be for the Buyers' account. The Sellers are
not required to replace spare parts including spare tail-end shaft(s) and spare propeller(s) which are taken out of
spare and used as replacement prior to delivery, but the replaced items shall be the property of the Buyers. The
radio installation and navigational equipment shall be included in the sale without extra payment, if same is the
property of the Sellers.
The Sellers have the right to take ashore crockery, plate, cutlery, linen and other articles bearing the Sellers'
flag or name, provided they replace same with similar unmarked items. Library, forms, etc., exclusively for use in
the Sellers' vessels, shall be excluded without compensation. Captain's, Officers' and Crew's personal belongings
including slop chest to be excluded from the sale, as well as the following additional items:
The Buyers shall take over remaining bunkers, unused lubricating oils and unused stores and provisions and
pay the current market price at the port and date of delivery of the vessel.
Payment under this clause shall be made at the same time and place and in the same currency as the Purchase
Money.
8. Documentation
In exchange for payment of the Purchase Money the Sellers shall furnish the Buyers with legal Bill
of Sale of the said vessel free from all encumbrances and maritime liens or any other debts whatsoe-
137
APPENDIX 10

ver. duly notarially attested and legalised by the consul together
with a certificate stating that the vessel is free from registered encumbrances. On delivery of the vessel the Sellers
shall provide for the deletion of the vessel from the Registry of Vessels and deliver a certificate of deletion to the
Buyers. The deposit shall be placed at the disposal of the Sellers as well as the balance of the Purchase Money.
which shall be paid as agreed together with payment for items mentioned in clause 7 above.
The Sellers shall, at the time of delivery, hand to the Buyers all classification certificates as well as all plans
etc. which are onboard the vessel. Other teclmical documentation which may be in the Sellers' possession shall
promptly upon the Buyers' instructions be forwarded to the Buyers. The Sellers may keep the log books, but the
Buyers to have the right to take copies of same.
9. Encumbrances
The Sellers warrant that the vessel, at the time of delivery, is free from all encumbrances and maritime liens
or any other debts whatsoever. Should any claims which have been incurred prior to the time of delivery be
made against the vessel, the Sellers hereby undertake to indemnify the Buyers against all consequences of such
claims.
10. Taxes etc.

Any taxes. fees and expenses connected with the purchase and registration under the Buyers' flag shall be
for the Buyers' account, whereas similar charges connected with the closing of the Sellers' register shall be for
the Sellers' accom1t.
11. Condition on delivery

The vessel with everything belonging to her shall be at the Sellers' risk and expense until she is delivered to
the Buyers, but subject to tile conditions of this contract, she shall be delivered and taken over as she is at the time
of inspection, fair wear and tear excepted.
However, the vessel shall be delivered with present class free of recommendations. The Sellers shall
notify the Classification Society of any matters corning to their knowledge prior to delivery which upon being
reported to the Classification Society would lead to the withdrawal of the vessel's class or to the imposition of a
recommendation relating to her class.
12. Name/markings
Upon delivery the Buyers undertake to change the name of the vessel and alter funnel markings.
13. Buyers' default

Should the deposit not be paid as aforesaid, the Sellers have the right to cancel this contract, and they shall
be entitled to claim compensation for their losses and for all expenses incurred together with interest at the rate
of 12% per annum.
Should the Purchase Money not be paid as aforesaid, the Sellers have the right to cancel this contract, in
which case the amount deposited together with interest earned, if any, shall be forfeited to the Sellers. If the
deposit does not cover the Sellers' losses, they shall be entitled to claim further compensation for tlleir losses and
for all expenses together with interest at the rate of 12% per annum.
14. Sellers' default

If the Sellers fail to execute a legal transfer or to deliver the vessel with everything belonging to her in tile
manner and within the time specified in line 38, the Buyers shall have tile right to cancel this contract in which
case the deposit in full shall be returned to the Buyers together with interest at the rate of 12% per annum. The
Sellers shall make due compensation for the losses caused to the Buyers by failure to execute a legal transfer or to
deliver the vessel in the manner and within the time specified in line 38, if such are due to the proven negligence
of the Sellers.
15. Arbitration
If any dispute should arise in connection with tile interpretation and fulfilment of this contract, same shall be
decided by arbitration in the city of 3)
and shall be referred to a single Arbitrator to be appointed by the parties hereto. If the parties cannot agree upon
the appointment of the single Arbitrator, the dispute shall be settled by tlrree Arbitrators, each party appointing
one Arbitrator, the third being appointed by 4)
138
APPENDICFS
APPENDIX 10

If either of the appointed Arbitrators refuses or is incapable of acting, the party who appointed him, shall
appoint a new Arbitrator in his place.
If one of the parties fails to appoint an Arbitrator-either originally or by way of substitution-for two weeks
after the other party having appointed his Arbitrator has sent the party making default notice by mail, cable or
telex to make the appointment, the party appointing the third Arbitrator shall, after application from the party
having appointed his Arbitrator, also appoint an Arbitrator on behalf of the party making default.
The award rendered by the Arbitration Court shall be final and binding upon the parties and may if necessary
be enforced by the Court or any other competent authority in the same manner as a judgement in the Court of
Justice.
This contract shall be subject to the law of the country agreed as place of arbitration.
I) The name of the Classification Society to he inserted.

2) Notes, if any. in the Surveyor.~ report which are accepted hy the Classification Society without qualification are not to he taken into
account
3) The place of arbitration to he inserted. If this one is not filled in, it is understood that arbitration will take place in London in accordance
with English low
4) If this line is not filled in it is understood that the third Arbitrator shall he appointed hy the London Maritime Arbitrators 'Association in
London.
By kind permission of The Norwegian Shipbrokers Association
139
APPENDIX 10

Appendix to Memorandum of Agreement code-name SALEFORM 1987-dated
140
APP 0 "JDICES
APPENDIX 11
Norwegian Saleform
i'l:f'oN.t.!ll •..:r. ~~ j"!''!~rl..··,· .\. ........:t-.•11.1 ~1t:tN·
MEMORANDUM OF AGREEMENT r~d-'•'~~~~6't -'~JI•T~-==11'•:! :<11

JJ-:1~ ~'lt..! I:~ ~~~~- Bo~·:.~. 011;J
.,,lc ,~o~k) j:"Jro·ha'-t l)l .
J.-.k.rr...LtlvnOJ.I'
Mlfit:n-..::C:l ...,.ll ;l:tt~K"\)a;n ~"f.%.
t::~r.k·l!11!;rr
Dated:
SALEFORM 1993
hereinafter called the Sellers, have agreed to ~ell, and
hereinafter called the Buyers, have agreed to buy 2
Name: 3
Classification Society/Class: 4
Built: By: 5
Flag: Place of Registration: 6
Call Sign: Grt/Nrt: 7
Register Number: 8
hereinafter called the Vessel, on the following terms and conditions: 9
Definitions 10
"Banking days" are days on which banks are open both in the country of the currency 11
stipulated for the Purcha<;e Price in Clause 1 and in the place of closing stipulated in Clause 8. 12
"In writing" or "written" means a letter handed over from the Sellers to the Buyers or vice versa, 13
a registered letter, telex, telefax or other modern form of written communication. 14
"Classification Society" or "Cias~" means the Society referred to in line 4. 15
L Purchase Price 16
2. Deposit 17
As security for the correct fulfilment of this Agreement the Buyers shall pay a deposit of 10% 18
(ten per cent) of the Purchase Price within banking days from the date of this 19
Agreement. This deposit shall be placed with 20
and held by them in a joint account for the Sellers and the Buyers. to be released in accordance 21
with joint written instructions of the Sellers and the Buyers. Interest, if any, to be credited to the 22
Buyers. Any fee charged for holding the said deposit shall be borne equally by the Sellers and the 23
Buyers. 24
3. Payment 25
The said Purchase Price shall be paid in full free of bank charges to 26
on delivery of the Vessel, but not later than 3 banking days after the Vessel is in every respect 27
physically ready for delivery in accordance with the terms and conditions of this Agreement and 28
Notice of Readiness has been given in accordance with Clause 5. 29
This Cont~Bct is a computer generated copy of the SALEFORM 1993 form. printed under ~cense from lhe Norwegian Shipbrokers'Assoda1ian, using the BIMCO Charter Party Editor Ally insertion or aeletion to 1he
form musf be clearty VISible in event of any modification being made to the preprinted text of this document, which is not clear1y visible, the original document, as recommended by SIMCO, shall apply The Norweg1an
Shipbroke~'A550Gation and BIMCO assume no respoosibiHty for any loss or damage caused as a result o1 discrepancies between the anginal docl.rnent and this document
141
Se~1P SALE AND PuRCHASE
APPENDIX 11
Norwegian Saleform (Continued)

4. Inspections 30
a)* The Buyers have inspected and accepted the Vessel's classification records. The Buyers 31
have also inspected the Vessel at/in on 32
and have accepted the Vessel following this inspection and the sale is outright and definite, 33
subject only to the terms and conditions of this Agreement. 34
b)* The Buyers shall have the right to inspect the Vessel's classification records and declare 35
whether same are accepted or not within 36
The Sellers shall provide for inspection of the Vessel at/in 37
The Buyers shall undertake the inspection without undue delay to the Vessel. Should the 38
Buyers cause undue delay they shall compensate the Sellers for the losses thereby incurred. 39
The Buyers shall inspect the Vessel without opening up and without cost to the Sellers. 40
During the inspection, the Vessel's deck and engine log books shall be made available for 41
examination by the Buyers. If the Vessel is accepted after such inspection. the sale shall 42
become outright and definite. subject only to the terms and conditions of this Agreement, 43
provided the Sellers receive written notice of acceptance from the Buyers within 72 hours 44
after completion of such inspection. 45
Should notice of acceptance of the Vessel's classification records and of the Vessel not be 46
received by the Sellers as aforesaid, the deposit together with interest earned shall be 47
released immediately to the Buyers. whereafter this Agreement shall be null and void. 48
* 4 a) and 4b) are alternatives; delete whichever is not applicable. In the absence of deletions, 49
alternative 4a) to apply. 50
5. Notices, time and place of delivery 51
a) The Sellers shall keep the Buyers well informed of the Vessel's itinerary and shall 52
provide the Buyers with , . and days notice of the estimated time of arrival at the 53
intended place of drydocking/underwater inspection/delivery. When the Vessel is at the place 54
of delivery and in every respect physically ready for delivery in accordance with this 55
Agreement, the Sellers shall give the Buyers a written Notice of Readiness for delivery. 56
b) The Vessel shall be delivered and taken over safely afloat at a safe and accessible berth or 57
anchorage at/in 58
in the Sellers' option. 59
Expected time of delivery: 60
Date of cancelling (see Clauses 5 c), 6 b) (iii) and 14): 61
c) lf the Sellers anticipate that, notwithstanding the exercise of due diligence by them, the 62
Vessel will not be ready for delivery by the cancelling date they may notify the Buyers in 63
writing stating the date when they anticipate that the Vessel will be ready for delivery and 64
propose a new cancelling date. Upon receipt of such notification the Buyers shall have the 65
option of either cancelling this Agreement in accordance with Clause 14 within 7 running 66
days of receipt of the notice or of accepting the new date a~ the new cancelling date. lf the 67
Buyers have not declared their option within 7 running days of receipt of the Sellers' 68
notification or if the Buyers accept the new date, the date proposed in the Sellers' notification 69
shall be deemed to be the new cancelling date and shall be substituted for the cancelling 70
date stipulated in line 61. 71
If this Agreement is maintained with the new cancelling date all other terms and conditions 72
hereof including those contained in Clauses 5 a) and 5 c) shall remain unaltered and in full 73
force and effect. Cancellation or failure to cancel shall be entirely without prejudice to any 74
claim for damages the Buyers may have under Clause 14 for the Vessel not being ready by 75
the original cancelling date. 76
d) Should the Vessel become an actual, constructive or compromised total loss before delivery 77
the deposit together with interest earned shall be released immediately to the Buyers 78
whereafter this Agreement shall be null and void. 79
This Contract is a computer generated copy of the SALEFORM 1993 form. printed under license from the Norwegian Shipbrokers'Association, using the BIMCO Charter Party Editor. Any insertion or deletion to the
fonn must be clearly visible in event of any modification being made to the preprinted tex1 of 1tus document, which is not ctear1y visitlte. the original docllllent, as recommended by BIMCO, shaH apply. The Norweg1an
Shi~rokers'Assotiat!OO and SIMCO assume no responsitility tor any loss or damage caused as a result of discrepandes between the original document and llis document
142
A~PENDICES
APPENDIX 11

6. Drydocking!Divers Inspection 80
a)** The Sellers shall place the Vessel in drydock at the port of delivery for inspection by the 81
Classification Society of the Vessel's underwater parts below the deepest load line, the 82
extent of the inspection being in accordance with the Classification Society's rules. lf the 83
rudder, propeller, bottom or other underwater parts below the deepest load line are found 84
broken, damaged or defective so as to affect the Vessel's class, such defects shall be made 85
good at the Sellers' expense to the satisfaction of the Classification Society without 86
condition/recommendation*. 87
b)** (i) The Vessel is to be delivered without drydocking. However, the Buyers shall 88
have the right at their expense to arrange for an underwater inspection by a diver approved 89
by the Classification Society prior to the delivery of the Vessel. The Sellers shall at their 90
cost make the Vessel available for such inspection. The extent of the inspection and the 91
conditions under which it is performed shall be to the satisfaction of the Classification 92
Society. If the conditions at the port of delivery are unsuitable for such inspection, the 93
Sellers shall make the Vessel available at a suitable alternative place near to the delivery 94
port. 95
(ii) If the rudder, propeller, bottom or other underwater parts below the deepest load line 96
are found broken, damaged or defective so a~ to affect the Vessel's class. then unless 97
repairs can be carried out afloat to the satisfaction of the Classification Society, the Sellers 98
shall arrange for the Vessel to be drydocked at their expense for inspection by the 99
Classification Society of the Vessel's underwater parts below the deepest load line, the 100
extent of the inspection being in accordance with the Classification Society's rules. If the 101
rudder, propeller, bottom or other underwater parts below the deepest load line are found 102
broken, damaged or defective so as to affect the Vessel's class, such defects shall be made 103
good by the Sellers at their expense to the satisfaction of the Classification Society 104
without condition/recommendation*. In such event the Sellers are to pay also for the cost of 105
the underwater inspection and the Classification Society's attendance. 106
(iii) If the Vessel is to be drydocked pursuant to Clause 6 b) (ii) and no suitable dry- 107
docking facilities are available at the port of delivery, the Sellers shall take the Vessel 108
to a port where suitable drydocking facilities are available. whether within or outside the 109
delivery range as per Clause 5 b). Once drydocking has taken place the Sellers shall deliver 110
the Vessel at a port within the deli very range as per Clause 5 b) which shall. for the Ill
purpose of this Clause, become the new port of delivery. In such event the cancelling date 112
provided for in Clause 5 b) shall be extended by the additional time required for the 113
drydocking and extra steaming, but limited to a maximum of 14 running days. 114
c) If the Vessel is drydocked pursuant to Clause 6 a) or 6 b) above 115
(i) the Classification Society may require survey of the tailshaft system. the extent of 116
the survey being to the satisfaction of the Classification surveyor. If such survey is not 117
required by the Classification Society. the Buyers shall have the right to require the tail shaft 118
to be drawn and surveyed by the Classification Society, the extent of the survey being in 119
accordance with the Classification Society's rules for tailshaft survey and consistent with 120
the current stage of the Vessel's survey cycle. The Buyers shall declare whether they 121
require the tailshaft to be drawn and surveyed not later than by the completion of the 122
inspection by the Cla~sification Society. The drawing and refitting of the tail shaft shall be 123
arranged by the Sellers. Should any parts of the tail shaft system be condemned or found 124
defective so as to affect the Vessel's cla~s. those parts shall be renewed or made good at 125
the Sellers' expense to the satisfaction of the Classification Society without 126
condition/recommendation*. 127
This Contrael is a computer generated copy at the SALE FORM ~ 993 form, printed under license from l"le Norwegian Shipbrokers'Assodation, using the BIMCO Charter Party Editor. Arly Insertion or deletion to 1he
form must be clearty visible in event of any modification being made to the preprinted tex1 of this document. which is not clearty visible, the original document, as recommended by SIMCO. shall apply The Norwegian
Shipbrokers'Association and BIMCO assume no responsibility for any loss or damage caused as a result at discrepancies between the original document and this document
143
APPENDIX 11

( ii) the expenses relating to the survey of the tai !shaft system shall be borne 128
by the Buyers unless the Classification Society requires such survey to be carried out, in 129
which case the Sellers shall pay these expenses. The Sellers shall also pay the expenses 130
if the Buyers require the survey and parts of the system are condemned or found defective 131
or broken so as to affect the Vessel's class*. 132
(iii) the expenses in connection with putting the Vessel in and taking her out of 133
drydock, including the drydock dues and the Classification Society's fees shall be paid by 134
the Sellers if the Classification Society issues any condition/recommendation* as a result 135
of the survey or if it requires survey of the tail shaft system. In all other cases the Buyers 136
shall pay the aforesaid expenses, dues and fees. 137
(iv) the Buyers' representative shall have the right to be present in the drydock, but 138
without interfering with the work or decisions of the Cla~sification surveyor. 139
(v) the Buyers shall have the right to have the underwater parts of the Vessel 140
cleaned and painted at their risk and expense without interfering with the Sellers' or the 141
Classification surveyor's work, if any, and without affecting the Vessel's timely delivery. If, 142
however, the Buyers' work in drydock is still in progress when the Sellers have 143
completed the work which the Sellers are required to do, the additional docking time 144
needed to complete the Buyers' work shall be for the Buyers' risk and expense. In the event 145
that the Buyers' work requires such additional time, the Sellers may upon completion of the 146
Sellers' work tender Notice of Readiness for delivery whilst the Vessel is still in drydock 147
and the Buyers shall be obliged to take delivery in accordance with Clause 3, whether 148
the Vessel is in dry dock or not and irrespective of Clause 5 b). 149
* Notes. if any, in the surveyor's report which are accepted by the Classification Society 150
without condition/recommendation are not to be taken into account. 151
** 6 a) and 6 b) are alternatives; delete whichever is not applicable. In the absence of deletions, 152
alternative 6 a) to apply. 153
7. Spares/bunkers, etc. 154
The Sellers shall deliver the Vessel to the Buyers with everything belonging to her on board and on 155
shore. All spare parts and spare equipment including spare tail-end shaft(s) and/or spare 156
propellerts)/propeller blade(s), if any, belonging to the Vessel at the time of inspection used or 157
unused, whether on board or not shall become the Buyers' property, but spares on order are to be 158
excluded. Forwarding charges, if any. shall be for the Buyers' account. The Sellers are not required to 159
replace spare parts including spare tail-end shaft(s) and spare propeller(s)/propeller blade(s) which 160
are taken out of spare and used as replacement prior to delivery, but the replaced items shall be the 161
property of the Buyers. The radio installation and navigational equipment shall be included in the sale 162
without extra payment if they are the property of the Sellers. Unused stores and provisions shall be 163
included in the sale and be taken over by the Buyers without extra payment. 164
The Sellers have the right to take ashore crockery, plates, cutlery, linen and other articles bearing the 165
Sellers' flag or name, provided they replace same with similar unmarked items. Ubrary. forms. etc., 166
exclusively for use in the Sellers' vessel(s), shall be excluded without compensation. Captain's, 167
Officers' and Crew's personal belongings including the slop chest are to be excluded from the sale. 168
as well as the following additional items (including items on hire): 169
The Buyers shall take over the remaining bunkers and unused lubricating oils in storage tanks and 170
sealed dmms and pay the current net market price (excluding barging expenses) at the port and date 171
of deli very of the Vessel. 172
Payment under this Clause shall be made at the same time and place and in the same currency as 173
the Purchase Price. 174
This Contract is a compu1er generated copy of the SALEFORM 1993 form, printed under license from the Norwegian Shipbrokers'Assodation, using the SIMCO Char1er Party Editor. My Insertion or deletion to the
form mus1 be clearty visible in event of any modification being made to the prepnn1ed 1ex1 of this document, which is not clearly visible, the original document, as recommended by BIMCO. shaH apply The Norweg1an
Shcpbrokers'Assodation and SIMCO assume no responsibility tor any loss or damage caused as a result of discrepancies between the original document and this document.
144
APPENDICFS
APPENDIX 11

8. Documentation 175
The place of closing: 176
In exchange for payment of the Purchase Price the Sellers shall furnish the Buyers with delivery 177
documents, namely: 178
a) Legal Bill of Sale in a form recordable in (the country in which the Buyers are 179
to register the Vessel), warranting that the Vessel is free from all encumbrances, mortgages 180
and maritime liens or any other debts or claims whatsoever, duly notarially attested and 181
legalized by the consul of such country or other competent authority. 182
b) Current Certificate of Ownership issued by the competent authorities of the flag state of 183
the Vessel. 184
c) Confirmation of Class issued within 72 hours prior to delivery. 185
d) Current Certificate issued by the competent authorities stating that the Vessel is free from 186
registered encumbrances. 187
e) Certificate of Deletion of the Vessel from the Vessel's registry or other official evidence of 188
deletion appropriate to the Vessel's registry at the time of delivery, or. in the event that the 189
registry does not a~ a matter of practice issue such documentation immediately, a written 190
undertaking by the Sellers to effect deletion from the Vessel's registry forthwith and furnish a 191
Certificate or other official evidence of deletion to the Buyers promptly and latest within 4 192
(four) weeks after the Purchase Price has been paid and the Vessel has been delivered. 193
f) Any such additional documents as may reasonably be required by the competent authorities 194
for the purpose of registering the Vessel, provided the Buyers notify the Sellers of any such 195
documents as soon as possible after the date of this Agreement. 196
At the time of delivery the Buyers and Sellers shall sign and deliver to each other a Protocol of 197
Delivery and Acceptance confrrming the date and time of delivery of the Vessel from the Sellers to the 198
Buyers. 199
At the time of delivery the Sellers shall hand to the Buyers the classification certificate(s) as well as all 200
plans etc., which are on board the Vessel. Other certificates which are on board the Vessel shall also 201
be handed over to the Buyers unless the Sellers are required to retain same, in which case the 202
Buyers to have the right to take copies. Other technical documentation which may 203
be in the Sellers' possession shall be promptly forwarded to the Buyers at their expense, if they so 204
request. The Sellers may keep the Vessel's log books but the Buyers to have the right to take 205
copies of same. 206
9. Encumbrances 207
The Sellers warrant that the Vessel, at the time of delivery, is free from all charters. encumbrances, 208
mortgages and maritime liens or any other debts whatsoever. The Sellers hereby undertake 209
to indemnify the Buyers against all consequences of claims made against the Vessel which have 210
been incurred prior to the time of delivery. 211
10. Taxes, etc. 212
Any taxes. fees and expenses in connection with the purchase and registration under the Buyers' flag 213
shall be for the Buyers' account. whereas similar charges in connection with the closing of the Sellers' 214
register shall be for the Sellers' account. 215
This Contrac1 is a computer generated copy ot fle SALEFORM 1993 form, printed under license from the Norwegian Shipbrokers'Association, using the SIMCO Char1er Party Editor. Any insertion or deletion to the
form must be dearty visible in event of any modification being made to the preprinted text of this document, which is not clearty visible, the original document, as recommended by BIMCO, shall apply The Norwegian
Shipbrokers'Association and BIMCO assume no responsibility tor any loss or damage caused as a resuh of discrepancies between the original document and this document
145
SHIP SAcE AND PuRCHASE
APPENDIXll

11. Condition on delivery 216
The Vessel with everything belonging to her shall be at the Sellers' risk and expense until she is 217
delivered to the Buyers, but subject to the terms and conditions of this Agreement she shall be 218
delivered and taken over as she was at the time of inspection, fair wear and tear excepted. 219
However, the Vessel shall be delivered with her class maintained without condition/recommendation*, 220
free of average damage affecting the Vessel's class, and with her classification certificates and 221
national certificates, as well as all other certificates the Vessel had at the time of inspection, valid and 222
unextended without condition/recommendation* by Class or the relevant authorities at the time of 223
delivery. 224
"Inspection" in this Clause 11, shall mean the Buyers' inspection according to Clause 4 a) or 4 b). if 225
applicable, or the Buyers' inspection prior to the signing of this Agreement. lf the Vessel is taken over 226
without inspection. the date of this Agreement shall be the relevant date. 227
* Notes. if any, in the surveyor's report which are accepted by the Cla~sification Society 228
without condition/recommendation are not to be taken into account. 229
12. Name/markings 230
Upon delivery the Buyers undertake to change the name of the Vessel and alter funnel markings. 231
13. Buyers' default 232
Should the deposit not be paid in accordance with Clause 2, the Sellers have the right to cancel this 233
Agreement, and they shall be entitled to claim compensation for their losses and for all expenses 234
incurred together with interest. 235
Should the Purchase Price not be paid in accordance with Clause 3, the Sellers have the right to 236
cancel the Agreement, in which case the deposit together with interest earned shall be released to the 237
Sellers. lf the deposit does not cover their loss, the Sellers shall be entitled to claim further 238
compensation for their losses and for all expenses incurred together with interest. 239
14. Sellers' default 240
Should the Sellers fail to give Notice of Readiness in accordance with Clause 5 a) or fail to be ready 241
to validly complete a legal transfer by the date stipulated in line 61 the Buyers shall have 242
the option of cancelling this Agreement provided always that the Sellers shall be granted a 243
maximum of 3 banking days after Notice of Readiness has been given to make arrangements 244
for the documentation set out in Clause 8. lf after Notice of Readiness has been given but before 245
the Buyers have taken delivery, the Vessel ceases to be physically ready for delivery and is not 246
made physically ready again in every respect by the date stipulated in line 61 and new Notice of 247
Readiness given, the Buyers shall retain their option to cancel. ln the event that the Buyers elect 248
to cancel this Agreement the deposit together with interest earned shall be released to them 249
immediately. 250
Should the Sellers fail to give Notice of Readiness by the date stipulated in line 61 or fail to be ready 251
to validly complete a legal transfer as aforesaid they shall make due compensation to the Buyers for 252
their loss and for all expenses together with interest if their failure is due to proven 253
negligence and whether or not the Buyers cancel this Agreement. 254
15. Buyers' representatives 255
After this Agreement has been signed by both parties and the deposit has been lodged, the Buyers 256
have the right to place two representatives on board the Vessel at their sole risk and expense upon 257
arrival at on or about 258
These representatives are on board for the purpose of familiarisation and in the capacity of 259
observers only. and they shall not interfere in any respect with the operation of the Vessel. The 260
Buyers' representatives shall sign the Sellers' letter of indemnity prior to their embarkation. 261
This Contrael is a computer generated oopy o1 the SALEFORM 1993 form, printed under license from the Norwegian Shipbrokers'Association, using the SIMCO Charter Party Editor Any insertion or deletion to the
form must be dearly visible in event of any modification being made to the preprinted text of this document, which is not dearfy visible, the original document, as recommended by BIMCO, shall apply The Norweg1an
Shipbrokers'Associatton and BIMCO a:1rume no responsibility for any loss o; damage caused as a result of discrepancies between the original dorument and thts dOrument
146
APPENDIX 11

16. Arbitration 262
a)* This Agreement shall be governed by and construed in accordance with English law and 263
any dispute arising out of this Agreement shall be referred to arbitration in London in 264
accordance with the Arbitration Acts 1950 and 1979 or any statutory modification or 265
re-enactment thereof for the time being in force. one arbitrator being appointed by each 266
party. On the receipt by one party of the nomination in writing of the other party's arbitrator, 267
that party shall appoint their arbitrator within fourteen days, failing which the decision of the 268
single arbitrator appointed shall apply. If two arbitrators properly appointed shall not agree 269
they shall appoint an umpire whose decision shall be final. 270
b)* This Agreement shall be governed by and construed in accordance with Title 9 of the 271
United States Code and the Law of the State of New York and should any dispute arise out of 272
this Agreement, the matter in dispute shall be referred to three persons at New York, one to 273
be appointed by each of the parties hereto, and the third by the two so chosen; their 274
decision or that of any two of them shall be final, and for purpose of enforcing any award, this 275
Agreement may be made a rule of the Court. 276
The proceedings shall be conducted in accordance with the rules of the Society of Maritime 277
Arbitrators. Inc. New York. 278
c)* Any dispute arising out of this Agreement shall be referred to arbitration at 279
, subject to the procedures applicable there. 280
The laws of shall govern this Agreement. 281
* 16 a), 16 b) and 16 c) are alternatives; delete whichever is not applicable. In the absence of 282
deletions, alternative 16 a) to apply. 283
By kind permission of The Norwegian Shipbrokers Association
This Contract is a oomputer generated copy of the SALEFORM 1993 form, printed under license from the Norwegian Shipbrokers'Association, using the BIMCO Charter Party Editor. Any insertion or deletion to the
form must be clearly visible in event of any modification being made to the preprinted tex1 of this document, whidl is not clearly visible, the original document, as recommended by SIMCO. shaa apply The Norwegian
Shipbrokers'Associatioo and BIMCO assume no responsibility for any loss or damage caused as a result of discrepancies between the original document and this document
147
APPENDIX 12
Nipponsale 1999
Issued Dec.16, 1965
Amended Jul. 13, 1971
Amended Mar.16, 1977
The Documentary Committee of The Japan Shipping Exchange, Inc.
Amended Sep. 9, 1933
Amended Nov. 2, 1999 MEMORANDUM OF AGREEMENT
Place and Date of Agreement
Code Name: NIPPONSALE 1999 (Part I)

1. Sellers (Preamble) 2. Buyers (Preamble)
3. Vessel's name (Preamble) 4. Flag/Registry (Preamble, Cl. 3 (a) (ii))
5. Class (Preamble, Cl. 6 (b)) 6. Built (year and builder's name) (Preamble)
7. Gross register tonnage (Preamble) 8. Summer deadweight tonnage (Preamble)
12. Place of closing (Cl. 3 (c))
13. Delivery range (Cl. 4 (a), Cl. 6 (e)(i), (f))
14. Delivery period (Cl. 4 (a)) and Cancelling Date (Cl. 4 (a), (d), (e))
15. Places (Cl. 2 (a), Cl. 4 (c))
16. Liquidated damages, per day (Cl. 7(c)) The additional clauses, if any, numbered from 16 to ................. .
shall be deemed to be fully incorporated into this Agreement.
It is mutually agreed that this Agreement shall be performed in accordance with the terms and conditions contained herein.
Signature (Sellers) Signature (Buyers)
148
APPENDIX 12
Nipponsale 1999 (Continued)

NIPPONSALE 1999 (Part 11)
IT IS THIS DAY MUTUALLY AGREED between the Sellers rcti:rrcd to have the right to designate a new date for delivery of the Vessel,
in Box I (''the Sellers") and the Buyers rcti:rrcd to in Box 2 ("1he Buyers") provided such right is exercised in writing within two (2) \Vorking
that the Sellers shall sell and tltc Buyers shall buy the Ves.•cl named in Days from the Cancelling Date, and such designated date shall be
Box 3 with particulars as referred to in Boxes 4-8 C'thc Vessel .. ), which has the new Cancelling Date a.'i if stated in Box 14. However if no new
been accepted by the Buyers tO !lowing their supcrticial in.~pcction of the Cancelling Date is d"'-signatcd by the Buyers in accordance with
Vessel and examination of her class records as referred to in Boxes 9 and l 0 this sub-clause there shall be no further Cancelling Date and the
respectively on the following terms and conditions. Sellers shall deliver the Vessel a-;: soon ao; pmt'1icablc.
(c) Notwithstanding the exercise of due diligence by them, if the
I. PURCHASE PRICE Sellers anticipate that the Vessel will not be ready for delivery
The purchase price of the Vessel ("'the Purchase Price") shall be as ~tatcd by the Cancelling Date, (whether it be the first agreed Cancelling
in Box II. Date or any subsequent Cancelling Date as provided for in sub-
clause (d) aOOve), then the Sellers may notify the Buyers in writing
2. PAYMENT ~1ating the date when they anticipate that the Vcs..o,;cl will be ready
(a) As security fort he fulfilmcntofthisAgrccmcnt, the Buyers shall remit for delivery and proposing that date shall be the new Cancelling
a deposit often (10) per cent of the Purchase Price ("the Deposit") Date. Upon receipt of such notification the Buyers shall have the
to a bank nominated by the Sellers within three (3) banking days option to cancel this Agreement, provided such optioo is exercised
(being days on which banks arc open for the trdnsaction of business in writing within two (2) Working Days from the receipt of the
in the place •tated in Box 15 ("Banking Days")), from the date of aforesaid notification from the Sellers. If the Buyers do not
this Agreement, in the names of both the Sellers and the Buyers. Any exercise the option to cancel this Agreement, the date proposed
interest earned on the Deposit shall be credited to the Buyers. Bank by the Sellers shall be the new Cancelling Date as if stated in
charges on the Deposit shall be borne e4ually by the Sellers and Box 14.
the Buyers. The Deposit shall be paid to the Sellers as a part of the
Purchase Price in the same manner as the balance of the ninety (90) 5. DELIVERY CONDITION
(a) The Sellers shall deliver the Vessel to the Buyers in subotantially
hethcr such
(a) At the time of delivery of the Vessel, the Sellers shall provide the
Buyers with the following documents: 6. UNDERWATER INSPECTION
(i) the Bill of Sale, duly notarized by a Notary Public, specifying (a) The Sellers may deliver the Vessel without drydocking, subject to
that the Vessel is free from all debt.._, encumbrances, mortgages the tbllowing provisioos.
and maritime liens~ and (b) Prior to delivery of the Vcs.'cl the Buyers shall have the right to
(ii) a letter from the Sellers undettaking to supply a Deletion have divers approved by a classitieation society retCrrcd to in
Certiticatc from the Rcgi~1ry stated in Box 4 as soon a.-;: Box 5 (..the Cla.o;sification Society•'), carry out an inspc<.""tion of
practicable after the Vessel's delivery; and the Vessel's underwater pans below the summer load line in the
(iii) such other documents a... may be mutually agreed. presence of a surveyor of the Classification Society arranged by the
(b) Upon delivery the Buyers and the Sellers shall execute and exchange Sellers. Such inspection, if any, is to be at the Buyers' arrangement,
a Protocol of Delivery ami Acceptance, thereby contirming the date risk and expense and is not to interfere with the Vessel's operation
and time of delivery of the Vessel. and delivery schedule.
(~:)Closing shall take place at the plac~: stat~:d in Box 12. (~.:) The Buyers shall give a written notice of their intention to have
an underwater in.-;pcction carried out within two (2) days from the
4. DELIVERY PLACE AND TIME receipt of the seven (7) days n01ice "ipulated in sub-clause (b) of
(a) The Sclkrs shall ensure that the Ves.-;:cl is ready for delivery within Clause 4. If the Buyers t8.il to give such a written notice within
the Delivery Range stated in Box lJ not before and not later than the two (2) days, they shall lose their right to have an underwater
dates stated in Box 14, the latter date being the Cancelling Date. inspection.
(b) The Sellers shall keep the Buyers informed ofthc Vessel's itinerary (d) Upon receipt of the Buyers' notice the Sellers shall arrange with
and give the Buyers thirty (30), fifteen ( 15), seven (7) and three (3) the Cla.o.;sitication Society to carry out an underwater inspection.
days notice of the cx.pc'-'1Cd date and place of readiness tOr delivery. The cost of the underwater inspection shall be borne by the Buyers
(c) In the event that the Vessel is not ready tor delivery on or before unless damage atlCt'ling the cla'i..'i is tbund, in which cao;c the
the Cancelling Date, the Buyers shall have the option of cancelling Sellers shall bear the co•~.
this Agreement, provided such option shall be exercised in writing (c) Should any damage affecting the cla.•i.'i be tbund by such divers'
within two (2) Working Days (which shall be the days not falling on inspcc~ion the following shall apply:
Saturdays, Sundays, or Public holidays in the place stated in Box (i) where the damage is of such nature that repairs arc not n:quircd
15) from the Cancelling Date. However, if the tliilurc to deliver th~.; prior to the next scheduled drydocking by the Cla•\sitication
Ves."icl is caused by any event over which the Sellers have no control, Socic~y. then the Sellers and the Buyers shall each select a
then the Cancelling Date shall be extended by the corresponding reputable shipyard in the Delivery Range !..1atcd in Box 13 or ncar
time lost due to such event but in oo ca.<;e shall such exten.,.ion be for thereto and obtain from such shipyard a quotation tbr the cost
a period of more tban thirty (30) days. of repairs of the damage. Each quotation is to be tOr the direct
(d) In the event the Buyers do not ele<.'t to exercise the option to cancel repair costs oft he damage only and is not to include the co~1 of
this Agreement in accordance with sub-clause (c) above, they shall
149
Sf-liP SALE AND PURCf-IASE
APPENDIX 12
Nipponsale 1999 (Continued)

NIPPONSALE 1999 (Part II)
dockage and general service expenses. The Sellers shall then on shore, used or unused, except such things as arc in the normal course
have the option to either repair the damage prior to delivery of operations used during the period between the supcrticial inspection
of the Vessel or deliver the Vessel without the damage being and delivery. The Sellers shall provide the Buyers with an inventory
repaired with a reduction from the Purchase Price of the list at the time of delivery. Forwarding charges, if any, shall be tbr the
estimated co~1 of repairs. The estimated cost of repairs shall be Buyers· account. The Buyers shall take over and pay the Sellers for
defined as the average of the two quotations obtained from the the remaining bunkers and unused lubricating oils at the last purchased
two shipyards; prices evidenced by supporting vouchers. Payment under this clause
(ii} where the damage is of such nature that repairs arc required shall be made on or prior to delivery of the Vessel in the same currency
prior to the next scheduled drydocking by the Classitication as the Purchase Price.
Society, then the Sellers shall repair the damage at their cost
and expense and to the Classitication Society's satisfaction. II. EXCLUSION FROM THE SALE
(t) In the event that the Vessel is drydockcd to cftCct repairs of damage The Sellers have the right to take ashore all crockery, cutlery, linen and
in accordance with sub-clause (c) hcreol~ the Sellers shall have the other articles bearing the Sellers' flag or name, provided the Sellers
right to designate the drydock place as the new delivery place if sub:-.titute the same tbr an equivalent number and type of similar
such drydock place is within the Delivery Range ~tatcd in Box 13. unmarked items. Books, cassettes and forms etc., exclusively for usc
In such event the Buyers shall have the right to clean and paint by the Sellers on the Ves.<cl, shall he taken ashore before delivery.
the underwater parts of the Vessel at their risk and cxpcn..">e and Personal effects of the Master, Officers and Crew including slop chest
without interfering with the work of the Sellers and a surveyor and hired equipment, if any, arc excluded from this sale and shall be
of the Classitication Society and without atlCcting the Vessel's removed by the Sellers prior to delivery of the Vessel.
delivery schedule. However if the Buyers' work in drydock is ~1ill
in progress when the Sellers have completed their work, then the 12. CHANGE OF NAME ETC.
additional docking period necessary for completing such work The Buyers undenakc to change the name of the Vessel and alter the
shall be at the Buyers' risk and expense, in which event the Sellers funnel markings upon delivery of the Vessel.
shall have the right to tender a Notice of Readiness tOr Delivery on
or after compk'tion of their work. 13. ENCUMBRANCES ETC.
(g) If repairs arc The Sellers shall deliver to the Buyers the Vessel free !rom all debts,
7.
(a)
specitic
obligation under this Agreement and such failure is not remedied
(c) In the event the Buyers do not take delivery of the Vessel within within seven (7) days tbllowin~ receipt of a notice of dctault from
the period specified above, the Buyers shall pay to the Sellers the Seller to the Buyers then the Sellers shall have the right to
for each day of the delay up to the tenth (I Oth) day of the delay cancel this Agreement. In such event the Deposit if already paid,
the liquidated damages as •1atcd in Box 16. If the delay exceeds together with interest accrued thereon, if any, shall be forfeited to
ten ( 10) days then the Sellers shall have the right to cancel this tl1c Sellers. If the Deposit has not yet hecn paid the Sellers shall
Agreement and claim damages tOr their losses tlowing therefrom. have the right to receive the amount equivalent to the Deposit from
the Buyers. lf the Deposit or the amount equivalent to the Deposit
8. TOTAL LOSS AND FORCE MAJEURE docs not cover the Sellers· losses, the Sellers shall have the right
Should, before delivery, the Vessel become an actual, constructive to claim further compensation from the Buyers to recover such
or compromised total loss (not being a result of an act or omis.... ion los..... cs
of the Sellers committed with the intent to cau..~c such total loss or (b) Should the Sellers default in the delivery of the Vessel with
recklessly and with knowledge that such total loss would probably everything belonging to her in the manner and within the time
result therefrom), or should the Ves.'icl not be able to be delivered herein specified, or the Se11crs otherwise fail ro pcrtbrm their
heforc the Cancelling Date through the outbreak of war, the rc•1raint obligations under this Agreement and such failure is not remedied
of Governments, Princes or People, political reasons or any other cause within seven (7) days following receipt of a notice ofdctault from
over which the Sellers have no control, then this Agreement shall be the Buyers to the Sellers, then the Buyers shall have the right to
null and void and neither party shall be liable to the other. In such cancel this Agreement. In such event the Buyers shall have the right
event the Deposit together with interest accrued thereon, if any, shall to be paid the amount equivalent to the Deposit by the Sellers and
be immediately released in full to the Buyers. the Deposit, if already paid, together with intere~1 accrued thereon,
if any, shall be released to the Buyers. If the amount equivalent to
9. TRANSFER OF TITLE AND RISK the Deposit docs oot cover the Buyers'losscs the Buyers shall have
Title and risk to the Vessel, together with everything belonging to her, the right to claim further compensation from the Sellers to recover
shall pass to the Buyers upon both payment of the Purchase Price and such losses.
delivery of the Vessel having occurred. Delivery of the Vessel shall he
deemed to take place at the date and time ~peciticd in the Protocol of 15. ARBITRATION
Delivery and Acceptance. Any and all disputes arising out of or in connection with this Agreement
shall be submitted to arbitration held in Tokyo at the Tokyo Maritime
10. BELONGINGS AND BUNKERS Arbitration Commission fTOMAC") ofThe Japan Shipping Exchange,
The Sellers shall deliver to the Buyers the Vessel with everything Inc. in accordance with the Rules of TOMAC and any amendments
belonging to her at the time of the supcrticial inspection referred to in thereto, and the award given by the arbitmtors shall be tina I and binding
the Box 9 including all spare pans, stores and equipment, on board or on both parties.
150
APPEN::JICES
APPENDIX 13
BIMCO "Salescrap"
THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
1. Place and Date of Contract
STANDARD CONTRACT FOR THE SALE OF VESSEL'S
FOR DEMOLITION
CODE NAME: "SALESCRAP 87"
PART I
2. Sellers/Place of Business (full name, address & telex number) 3. Buyers/Place of Business (full name, address & telex number)
4. Name of Vessel (also state ex. name) 5. Type of Vessel 6. Buih (year and builder's name) 7. Flag
8. Class 9. Register Number 10. Place of Registration 11. GRT/NRT
12. Light Displacement Tonnage (Lightweight) (state whether in metric tons 13. Working Propeller(s) (state number 14. Spare Propeller(s) (state number
or long tons) (CI. 3) and material) and material)
15. Spare Tail End Shaft (state no.) 16. Main Engine (type and number) 17. Generator(s) (state number and type)
18. Purchase Price (in f~gures and leners) (state both lump sum price and equivalent price per ton lightweight; also state currency in which purchase price is
payable) (CI. 4)
(a) Lump sum price
(b) Equivalent price per ton lightweight
(c) Currency in which purchase price payable
19. Deposit (state amount, name and place of bank to which the deposit shall be paid) (CI. 5)
20. Letter of Credit (CI. 6)
(a) Number of banking days for establishing Letter of Credit (sub-clause 6.1. of Cl. 6)
(b) Opening Bank (name and place) (sub-clause 6.2. of Cl. 6)
(c) Advising Bank (name and place) (sub-clause 6.2. of Cl. 6)
(d) Expiry Date of Letter of Credit (sub-clause 6.5. of Cl. 6)
151
Se!IP SALE AND PURCHASE
APPENDIX 13
BIMCO "Salescrap" (Continued)

(continued) "SALESCRAP 87" STANDARD CONTRACT FOR THE SALE OF VESSELS FOR DEMOLITION PART I
21. Vessel's present position (if trading state "now trading"; if laid up state 22. Voyage (state whether under own power or under tow, as agreed) (CI. 8)
"in lay-up" and place where) (CI. 7)
23. Place of Delivery (also state approximate arrival draft fore and aft in 24. Time of Delivery/Cancelling Date (CI. 10)
metres or feet) (CI. 9)
(a) Place of delivery (sub-clause 9.1. of Cl. 9)
(b) Approximate arrival draft fore and aft in metres or feet (sub-clause 9.1. (a) Expected to be ready for delivery between (two dates to be given)
ofCI. 9) (sub-cl. 10.1. of Cl. 10
25. Advance Notices of Arrival and Delivery (state number of days definite
notice of delivery) (CI. 11)
(b) Cancelling date (sub-cl. 10.1. of Cl. 10)
26. Financial Documentation and Payment (CI. 13) 27. Buyers' Representative(s) (state no. of Representative(s)) (CI. 19)
(a) state by whom Bill of Sale shall be legalised (sub-cl. 13.1.(i) of Cl. 13) 28. Buyers' Default (state rate of interest per annum) (CI. 22)
(b) state number of Commercial Invoice (sub-cl. 13.1 .(iv) of Cl. 13) 29. Sellers' Default (state rate of interest per annum) (CI. 23)
30. Law and arbitration (state 24.1 ., 24.2. or 24.3. of Cl. 24, as agreed; if 24.3. agreed also state place of arbitration) (if Box 30 not filled in 24.1. shall apply) (CI. 24)
31. Names and Addresses for Notices and other Communications to be given 32. Names and Addresses for Notices and other Communications to be given
by the Sellers (CI. 25) by the Buyers (CI. 25)
33. Numbers of additional clauses covering special provisions, if agreed
It is mutually agreed between the party named in Box 2 (hereinafter referred to as "the Sellers") and the party named in Box 3 (hereinafter referred to as "the
Buyers") that on the date of this Contract the Sellers have sold and the Buyers have bought the Vessel described in PART I hereof and as may be further
described in Appendix "A" (hereinafter referred to as "the Vessel") on the terms and conditions contained in this Contract consisting of PART I including additional
clauses, if any agreed and stated in Box 33, and PART II as well as APPENDIX "A" as annexed hereto. In the event of a conflict of conditions, the provisions of
PART I shall prevail over those of PART II and APPENDIX "A" to the extent of such conflict but no further.
Signature (Sellers) Signature (Buyers)
152
APPENDIX 13

PART II
"SALESCRAP 87" Standard Contract
1. Vassel 9.2 If, on the Vessel's arrival, the Place of Delivery is inaccessible fa- any reason whatsoever
On the date of this Contract the Vessel shall be of the desaiption set out in PART I and, if induding but not limited to port congestion, the Vessel shall be delivered and taken over
by the Buyers as near thereto as she may safely get at a safe and accessible berth or at
required, as further desaibed in Appendix .A..
a safe anchorage which shall be designated by the Buyers always provided that such berth
or anchorage shall be subject to the approval of the Sellers and the Master. Such approval
2. Outright Sale shall not be unreasonably withheld. If the Buyers fa~ to nominate such place within 24 hours
2.1. The Vessel has been accepted by the Buyers without inspection and the sale is, of arrival, the ptace at which it is rustomary for vessels to wait shall constitute the Place of
therefore, outright and definite and not subject to subsequent inspection. Delivery.
2.2. The Vessel is sold with all materials, tackle, apparel, stores and spare parts belonging to 9.3. The delivery of the Vessel according to the provisions of sub-dause 9.2. shall constitute
her as on board at the date of this Contract but excluding items listed in AppendiX "A.. annexed a full performance of the Sellers' obligations according to sub-clause 9.1. and all other terms
to this Contract. and condrtions ci this Contract shall apply as if delivery had taken place according to sub-
2.3. Unless otherwise agreed, any remaining bunkers on board at the time of delivery shall dause 9.1
become the &yers' property.
10. Thna of Delivery/Cancelling Date
2.4. The SaUers shall, at the time of delivery, hand to the Buyers all plans, specifications and
certificates, or photocopies hereof, as avaHable and whether valid or invalid. 10.1. The Vessel is expected to be ready for delivery between the dates (both inclusive}
stated in Box 24 (a) but latest on the date stated in Box 24 {b) {hereinafter referred to as "the
2.5. The SaUers shall have the right to take ashore without compensation the following Items
cancelling date").
crockery, ~ate, cutlery, linen and other artides bearing the Sellers' flag or name, as well as
library, forms, etc., exdusively for use in the Sellers' vessels Captain's, OffiCers' and Crew's 10.2.(i). Should the Sellers anticipate with reasonable certainty that the Vessel w~l not be
personal belongings including slop chest to be excluded from the sale. ready for detivery by the cancelling date, they shall notify the Buyers hereof without delay
stating the probable date of the Vessel's readiness for delivery. Upon rec91pt of such
2.6. The Sellers are not required to replace such material, spare parts or stores induding
notification the Buyers shall have the option either to cancel the Contract according to Clause
spare propeller(s) {if any} which may be consumed or taken out of spare and used as
23 or to postpone the cancelling date.
replacement pria- to delivery, but all replaced spares shall be retained on board and shall
become the property of the Buyers 10.2.(ii). If the Buyers decide to maintain the Contract and postpone the cancelling date ex
if the BuYBfS do not Within 4 working days of receipt of the Sellers' notification declare their
option to cancel the Contract according to Clause 23, the fourth running day after the new
3. Light Dleplacement Tonnage (Lightweight)
date of readiness for delivery indicated in the Sellers' notiftcation shall be regarded as a new
The Vessers Light Disptacement Tonnage (Lightweight) as stated in Box 12 shall be cancelling date and shall be substituted for the cancelling date stipulated in Box 24(b}.
evidenced by the Builder's capacity plan incorporating deadweight scale {or an authenticated 10.3. If the Buyers elect to maintain the Contract, all the terms and conditions of this Contract
copy hereof) or, in the Sellers' option, a letter from the SuNders {or an authenticated copy induding the notification procedLW"es laid down in Clause 12 shall remain in full force and effect.
hereof) or, subject to Buyers' approval, any equivalent evidence of present lightweight of the
Vessel confrming same. Such proof shall be delivered by the Sellers to the Buyers latest 11. Advance Notk:e of Arrival and Delivery
10 days after the date of this Contract but latest on delivery whichever is the ewi;&r.
The Sellers shall keep the Buyers fUiy informed about the Vessel's position and about any
alteration in expected time of arrival and shall also give to the Buyers the number of days
4. Purchase Price a
definite notice delivery as agreed in Box 25.
The Purchase Price is the lump sum stated in Box 18 (a) payable in the rurrency indicated
in Box 18 (c), based upon a price per ton lightweight as stated in Box 18 (b) calculated on 12. Notice of Readiness for Delivery
the basis a the Vessel's lightweight as stated in Box 12. In the event the Vessel's lightweight 12.1. When the V9ssel is ready fcx defiv9f)', the Sellers or.theif" Agents shall give to the
as stated in Box 12 differs from the evidence as delivered by the Sellers according to Clause Buyers and to the Opening Bank a written Notice of Readiness for Delivery. Such Notice of
3 hereof. the lump sum stated in Box 18 (a) shall be adjusted With the amount as stated in Readiness for Delivery shall be oountetltigne<:l by Uoyd's Agents at the Place of Delivery.
Box 18 (b) so as to reftttd: th9 diffef"8nC8
12.2. In the event of the Vessel be1ng a tank vessel, the Notice cA Readiness for oetrvery shall
be accompanied by a valid Certificate issued by a competent authority or ~on acceptable
5. Deposit to th9 Buyers certifying that all cargo tanks, cofferdams and pump moms are gas-free, safe
5.1. As a serurtty for the correct fulfilment of this Contract, the Buyers shall pay a DejX)sit of for men and fire, and substantially free of residues, slops and sludges and such CertifiCate
10 (ten) percent, of the Purchase Price with the bank stated in Box 19 in the joint names of shall be deemed to be a full comptiance and dischcrge of the Sellers' obligations with respect
the Sellers and Buyers. to the cargo tanks, cofferdams and pump rooms Such Certificate shall be prov1ded by the
5.2. Such Deposrt shall be made latest within 3 banking days from the date of this Contract. Sellers at their cost.
5.3. Interest, if any, on such Deposit shall be credited the Buyers
13. Flnanclal Documentation and Payment
54. Any fees or charges for establishing and holding such Dep05it shall be borne equally by
the Sellers and the Buyers 13.1. The Sellers shall furnish the Advising Bank with the following documents.
{i) Legal Bill of Sale stating that the said Vessel is free from all encumbrances and maritime
6. Letter of Credn Itens or any other debts whatsoever, duly notarially attested and legalised by the Consul
or other competent authority stated in Box 26{a),
6.1 The Buyers shall establish by a fully detaded cable or telex a Confirmed Irrevocable At
(ii) Certificate of Ownership isSued by the competent authorftieS of the Flag State of the
Sight Letter of Credit in a form satisfactory to the Sellers for the full amount of the Purchase
Vessel,
Price latest wtthin the number of banking days from the date of this Centrad as stated 1n
Box 20(a). (i1i) Certificate stating that the vessel is fme fmm registered encumbrances:
6.2. Such letter of Cn!ldrt shall b9 established by the Buyers with a first dass Bank as (iv) Comi"Tl9ft:iallnvoice in the number stated in Box 26(b} signed by the Sellers, setting out
named in Box 20(b) {hereinafter referred to as ~he Opening Bank~} under advice to the Bank the Vessef's particulars;
nominated by the Sellers as named in Box 20(c) (hereinafter referred to as "the Advising (v) CertifiCate of Deletion of the Vessel from the Vessel's Registry or, in the Sellers' option,
Bank") a Written Undertaking by the Sellers to promptly, and latest within four weeks after the
6.3. Such Letter of Credit shall contain a provision that if the Opening Bank has not Within Purchase Sum has been fully paid and the Vessel has been delivered, to effect deletion
3 banking days confirmed by telex or cable to the Advising Bank that Notice of Readiness for from the Vessel's Registry and that a Certfficate of Deletion will thereupon be furnished
Delivery has been tendered according to Clause 12.1., the full amount of the letter of Credit to the Buyers;
shall be released to the Sellers immediately upon the Sellers' presentation to the Advising (vi} A written authorization from the Sellers to release to the Buyers the Dep05it established
Bank of a copy of the Notice of Readiness for Delivery together with the documents listed in by the Buyers according to Clause 5;
sub-dause 13.1. (vii) A Written Undertaking by the Setters to instruct the Master or their Agents by cable or
6.4. All bank charges in connection with the Confirmed Irrevocable letter of Credit shatl be for telex to release and physically deliver the Vessel to the Buyers.
the Buyers' account except for Advising Bank negotiating charges. 13.2 Immediately upon the tendering of Notice of Readiness for Delivery according to
6.5. The expiry date of the Letter of Credit shaft not be earlier than the date stated in Clause 12.1., the Opening Bank shall confirm by telex or cable to the Advising Bank that the
Box 20(d) Notice of Readiness for DeliVery has been received whereafter the full amount of the Letter
of Credit shall be released to the Sellers provided that the Advising Bank has been furnished
7. Vessel's Present Position with the documents listed in sub-clause 13.1
The Vessel's present position is as indicated in Box 21. If such conf.-mation by telex or cable has not ba&n given by the Opening Bank to the Advising
B~mk within 3 bankmg days after the Sellers· Not1ce cl Readiness of DeiiVBry has been
8. Voy- tendered, the full amount of the Letter of Credit shall be released to the Sellers immediately
6.1 The Vas~ shall proceed to the Place of Delivery either under her own pcwer or under upon the Sellers' presentation to the Advising Bank of a copy cA the Notice of Readiness for
tow, as agreed in Box 22 Delivery and the doruments listed in sub-clause 13 1
6.2. The Sellers shall have the nght either to let the Vessel proceed in ballast to the Place
of Delivery or, in their option, to proceed thereto with cargo on board up to the Vessel's full 14. Condition on Delivery
capacity. via port or ports whether en mute or not. 14.1. The Vessel with everything belonging to her shall be at the Sellers' risk and expense
until she is delivered to the Buyers.
9. Place of Delivery 14.2. Notwithstanding the provisions of sub-dause 14.1 , the Vessel with everything belonging
9.1. The Vessel shall be delivered by the Sellers to the Buyers safety afloat, free of cargo and to her shall be delivered and taken over by the Buyers substantially 1n the same condition as
(except for tank vesseJs) with hatches dosed and with the approximate arrival draft stated in she was on the date of this Contract after which the Sellers shall have no responsibility for
Box 23{b) at the place stated in Box 23(a) (hereinafter referred to as "the Place of Delivery") p06sible faults or deficiencies of any description
153
8'-IIP SALE AND PuRCHASE
APPENDIX 13

PART II
"SALESCRAP 87" Standard Contract
15. Funnel Mark, etc. 22. Buyers' Default
As soon as possible after deHvery l"le Buyers undertake to obliterate the name of the Vessel and 22.1. Should the Deposit not be paid in accordance will the provisions of Clause 5, the Sellers shall
funnel mark. have tie right to cancel1his Contract, and they shall be entiUed to claim compensation for their losses
and for an expenses incurred k:lgether will interest at the rate per annum stated in Box 28
16. Encumbrances and Maritime Uens, etc. 22.2. If 1he Buyers fail to establish the LeUer of Credit in accordance with the provisions of aause 6 CX'
The Sellers warrant that the Vessef, at 1he time of delivery, is charter-free and free from aM should the Purchase Sum not be paid in l'le manner provkted for in 1his Contract, lle Sellers shaR have
encumbrances and maritime liens or a1y otler deb1s whatsoever. Should any daims which have been lle right to cancel this Contract, in which case t'le amount deposited t>gether with interest earned, if
incurred prior to the time o1 deivery be made against the Vessel, the Sellers hereby undertake to any, shall be forfeited to lle SeUers. If the Deposit does not cover the Sellers' losses. they shall be
indemnify the Buyers against an consequences of such dairns entitled to daim further compensation for lleir losses and for au expenses together 'Nfth interest at the
rate per annum stated in Box 28
17. Taxes, Dues and Charges, etc.
17.1. All taxes, dues, duties (including import duties) and dlarges imposed upon the Vessel at the 23. Setters' Default
Place of DeHvery and notarial and/or consular and/or other charges or expenses connected will the If the SeKers fail to execute a legal transfer or to deliver the Vessel wi1h everything belonging to her in
pi..I"Chase and import of the Vessel at the Place of Delivery shall be berne by the Buyers. the manner and at the latest on 1he date specified in Box 24(b), lle Buyers shal have the right to cancel
17.2. All taxes, dues. duties and charges, including notarial and/or consular and/or other charges. or this Ccntract. in which case the Deposit in full together with the Letter of Credit. if established, shall be
expenses connected with tle closing of the Sellers' Register, shall be for the Sellers' account. retlxned to fle Buyers together with interest at the rate per annum stated in Box 29. The Sellers shall
make due canpensation for the losses caused to the Buyers by failure to exerute a legal1ransfer or to
18. Oeratlsatlon Exemption Cerdflcate delver the VesseJ in the manner and at the latest on the date specified in Box 24(b), if sudl are due to
the proven negligence of the SeNers
The Vessel shall be delivered by the Sellers with a valid Deratisation Exemption Certificate.
19. Buyers' RepresentatJve(s) 24. Law and ArbUratlon
The SeHers agree to allow the Buyers to place the nl.l'llber of Representative(s) stated in Box 27 on *) 24.1. This Contract shall be governed by English law and any dispute arising out of this Contract shal
board the Vessel on her arrival at the Place of Delivery be referred to arbitration in London. one arbitrator being appointed by each party, in accordance wi1h
lle Arbitratton Ac1s 1950 and 1979 or any statutory modification or re-enactment l'lereof for the time
Whilst on board the Vessel, such Rer;resentative(s) shall be at l"le sole fisk, liability and expense of
being in force. On the receipt by one pcwty of the nomination in writing of the other party's arbitrat>r, that
the Buyers and the Buyers shall indemnify the Sellers for any daims and damage in this respect. The
party shaH appoint fleir arbitrator within fourteen days, failing whidl lle decision of the single Arbitrator
Buyers' Representative{s) must not interfere with 1he operation of the Vessel
appointed shall appy. tf two Art:litrators property appointed shall not agree they shall appoint an ufT'4)ire
whose decision shall be final.
20. Purpose of Sale
') 24.2. This Contract shall be governed by U.S. Law and all disputes arising out of this Contract shal be
20.1. The Vessel is sold for the purpose of breaking-up only and lle Buyers undertake flat they arbitrated at Nevt York in the foiiONing mamer:
will neither trade the Vessel for their QI'NI'1 account nor set! lle Vessel t> a third party for any ~ One arbitrator is to be appointed by each of the parties herein and a t'lird by the two so chosen. Their
other than breaking-up. The Buyers shall prorure that this obigation is made a term of any and every decision or that d any two of them shall be final, and for the purpose of enton:ing any award, this
subsequent agreement for the resale of the Vessel. agreement may be made a rule of the court. The Art:litrators shall be commeroal men. Such Arbitration
20.2. Noo-compliance wi1h 1he provisions cootained in stil-dause 20.1. shall amcunt to a breach of is to be conducted in accordance with the rules of the Society of Marttime Arbitrators, Inc., New York,
the contract and tle Buyers shaN be liable to pay to lle Selers 20 (twenty) per cent, of the Purchase as currently amended
Price as liquida1ed damages resulting from such a breach A sate arbitrator may be appointed, if so desired by both parties.
,;m.J. Tne Buyers Mall, In due ootne, tum1st1 'U'Ie Selers v.;v, a Certificate stating tl'lat tt'le vessel rtas Ei~ party may call for arbitration by S8rvice of notice upcr1 the other. If the other p11rty dO@S not
be80 tnlillly demolished appotnt Its al't)ltrator wtt'lln tourtGon days at sucl'l wrttten notce. tl'len tl'le first moving party sl'lall nave
tte right, without further notice, to appoint a second arbitrator, with the same fon:e and effect as if said
21. ERmptlons second arbitrator had been appointed by the other party
') 24.3. Any dispute arising out of this Contract shall be reterre<J to arbitration at the place indicated in
The Sellers shaN be under no liabtlity to the Buyers if the Vessel should become an actual, construdlve
Box 30, subject to the law and procedures applicable there
or compromised total loss before delivery, r1 if delivery of the Vessel by the canceHing date should
othei'Ytlise be prevented or delayed due to outbreak Of w... restraint of Government. Princes. Rulers or 24.4. tf Box 30 in Part I is not filled in. si.Jb..dause 24.1. of this Clause shall appfy
People of any Nation or the United Nations, Act of God, or any other cause beyond the Sellers' control. ') 24.1 __ 24.2. and 24.3. am anemalfves; IndiCate alt9mattve agreed in Box 30.
If damage is sustained by the Vessel before delivery for any cause whatsoever or howsoever arising
otnd i1 ths sstirTlCIItsd cost of repairs to snable ths Vssssl to proceed to ths Place of Delivery would
exceed 10 (ten) percent, r:l the Purchase Price stated in Box 18, the Selers shall not be bcund to repair 25. Names and Addresses tor NoUces and Other Communications
the Vessel but shall be entitled to treat delivery as having thereby been prevented and shall similarly All notices and corrvnuntcations sna11 be 1n writing or by cable. telex or telegram and shall. unless
be under no ~abt~ty to 1'1e Buyers. wnere delivery sna1 beCome imposSible or prevented as aforesaid otherwise provided for in this Contract, be made by the Sellers, respectively 1he Buyers, to the
the Deposit as wei as the Letter of Credit, if estab~shed, shall be returned to the Buyers forthwith. addresses stated in Boxes 31 and 32
154
APPEt,mlcEs
APPENDIX 13
BIMCO "Salescrap" {Continued}

Appendix "A" to Standard Contract for the Sale of Vessels for Demolition
Code Name: "SALESCRAP 87" - dated
(i) Further description of the Vessel (if required):
(ii) Items excluded from the sale:
155
Sf-liP SALE AND PURCHASE
APPENDIX 13A
DEMOLISHCON
SIMCO STAIIOARD COHlRACT FOR THE SALE OF
VfSSELS FOR DEMOLITION AHO RECYCUNG
CODE NAME: "'EII«)USHCOif"
P.A.RT I
Ttu Oot.11nenl! 'I ~ ~r ~.-ed Of!:~tS>tCOti brm pnr41K:l tty: .auf!O'"Ily of 81\4CO Arey 1!1110f'f:;:cn !Jot' ;Setd~ tc- me foml rr-..1 De I;!Mfi-)" "~ ~Le; h t~t<'t:i"lt a( aD! ~1~m
'""llt~ ~.tt '«'* P-!~fl!P!htd !~.·~ c.f ~ ~ wt;c:ch ~ tlOt cl<t~t'1 ~$>Ilk !:he te.., <rt ~ ~~ ~¥00 .*J;!J.W"''fttd ~l.ift'e{)( thii6 ~) 5<\tCC I!Mi&.lf!'!C!$ f~ t~~~tr kJ.r .lmY !")$.•
d;vna~ "'".e:oto.~ ~t•;r ~iit<!!~~I"IQ>(!II- ~;~~~e-erolhe nr<iW'~ S.Mtt~.O ;ap~~ l'f<X',~ ....~~h*ce~~r ~~tllt~ ~1f'!'l~H"t
156
APPENDIX 13A
DEMOLISHCON (Continued)
(continued) PART I
"llEMOUSHCON" SIMCO STANDARD CONTRACT FOR TilE SAL£ OF VfSSElS FOR DEUOUTlOH AND RECYCUHC
37 Purclt.a~~e Price in ftlJIStS antlletm (stU both lump !iUitl p«e anti tit equivalent prite per long ion ligli disp!Meme~
, ..)lump $W1I pric~ (II)~ ~per long len ligli ~eft
c
38. ~>~!posit~ 39. Seier.~' bn (ltllte1111'1e IMJ)II«! and bank aa:oal!deliil$lowtichlhe
(a) State pt~te~Uge d ~ pnce .,._.of the ~ prier shal be plicl) (£Lj)
+N y
40. Fin.tnti.ll Oocumllni.Bn ts;UJ
(a) State plate of,. .
45. Oi:~~~IR Re~ (ltllte 21.1. ll.Z or l l i lill..-m plilce

of albilr.Vioo- be st.!~
4a ~ (11* poD! anti cllbte l<»~m. e-<nlil nlltftfa. 11Uf!!m 47. Nokes (ltllte posllliiM cllbte llddrts$. H1llii 1M !Mfll! numbet
far Sl!fllingnc!ltunl _..,!Ubon~ for!>tnllngnotoceand_,__.,~
The S4111ers shall not t.. held responslbl• fOr any errors, omissions a\dlor o\IOI¥all condition ol the V•U<II upon arrival • ttMt p i - of
t:Wiwory e>eotpt for the lt..-ns ~Clified in !his PART I
157
S>11P SAr_E AND PuClCHASE
APPENDIX 13A
PART II
"DEMOUSHCON" Standard Contract for the Sale of Vessels for Demolition and Recycling
Preamble 1 (v) a wntlen undertaking by the Se!leo~ to 1nS1ruct I he 70
The party stated tn ~(herein alter 1M Seller.>' I has 2 Master co- theer agents to promptly release eM del1ver 71
agreed to sell and the party stated In~ (hereinafter "the 3 the Vessel to the Buyers. 72
Buyers") has agreed to buy the Ve..ser stated"' Sox G on 4 (IIi) a cerbfied copy of the minutes a the Board of 73
the fOllowing terms and condlt1ons wtuc:h, m part ocular_ 5 Dtreclas and/or Sharehotdeo~ resolubon. as appro- 74
mcfude an undertakin<;~to comply Wllh the IMO Aeseiutron 6 priillc. accon:lin<;~ to wh1ch !hey detlde the sale of !he 75
A 962(23) IMO Gutdelinn on Sh•p Recyding (hereinafter I he 7 Vessel and a copy of the power of attorney aulhOfiZing 76
·rMO Guidelines·) in accordance with Clause 17 {Safety and 8 the S<s,wl ature of the bill of sale; 77
Environment) 9 (\Ill) a certificate accordng to which !he Sellers 76
guarantee !hat at the time of dehvel'f lhe vessel1s tree 79
Definition 10 from all encumbrances and maritime tiens a any other 80
'Banking Days· are days on which banl<s are open both in 11 debts whatsoever. 81
a
the counlfY the currency sUpulated for the pur.:hase price 12 !i.2 At the tme of dt!livery !he Buyets and the Sellers 62
in Ciause 2 and at the place of dosmg 13 shall Sis,wl a protocOl of delivery and acceptance 83
1. confirming the date and lime of delivery of !he Vessel. 84
I G
~~~:ll;:e :ai:ble~:the Bu~ cop1es
85
116
87
en~~ec:e
88
2. Purchase Prfce s fa del1 89
The purchase pnce is the ll!Jrn stated in ~(a!
payable in United stales OoUars based upon a price 20 6. Advance Notice of Arrival 90
per long ton Ugh! Displacement Toonage (LOT) (-.ee 21 The Sellers shall keep !he Buyefs fully info-med about 91
Clause 1:?!as slated 1n Box :>7(b) calculated on the 22 tile Vessel's po$ition and of any alteration ifl expected 92
basis oflhe Vessel's LOT as slated in Sox 20. 23 time of arrival aM shan gevetothe Buyers 15. 10, 7. 93
and 3 days notiCe of !he expecled lime of arriVill of the 9<1
3. Deposit 24 Ves-.el 95
3.1 As a security fo- !he due fulfilment of thiS Contract. 25
the Buyers shaH pay a deposl as stated in Box 38 to 26 7. Notice of Re_.inHs for Delivery 96
be placed with the bank staled in~ in the joint 27 When lhe Vessel is ready for delivery. the Sellers shan 97
names of tile Sellers and the Buyers 28 geve to the Buyers a written notice of readines$ fa 98
3.Z Such de?OSit shall be made latest v.;thin 29 detivery The notice of readiness shall be tendered 99
i:l 3 banking days after the date of ~r>g tNs Contract 30 durmg no-mat offece hours at the Place of DeiM!I)' and. 100
::!., 3.31nlennt, It 1111y, on soch depostt Shall be cre111ted 31 unless otherwise specifecally provided elsewhere In 101
to !he Bu~rs 32 thi!i Corrtra(;t, be tt<X~anied by !he folowing 102
8:;:; 3..t Arly fees or charges fo- estabkshing and holdlng 33 documents to the extent nece,S&IY
7.1 a certificate i$ll!Jed by a local manne surveyor
103
104
such dl!l»$it shall be borne eQually by the Sellers and 34
a:: the Buyers. 35 confirming the LOT o1 tile Vessel as stated in !?9x 20 105
..,~· as per !he budders' aiginal trim artd slabifity booklei 106
"=' ... PayrMnl 36 or the bu ~den> capacity plan on board I he Vessel 107
E Tile Buyers shall release the depos~ slated in Bm 31\ 37 v.tltcl1 has been signted. 108
~ to the Sellers and shall pay the balance of the said 38 7.2 ~ letter from the Sellers' local agents at the Pla~:e 109
purchase price in full io the Sellers" bank stated in Box 39 of Deh~ry stating that there are no pending dues 110
~on delivel'f latest within 3 banking days trom !he- 40 against the Vessel at the time of deHvery; 1 11
time the SeRers have tendered notice of readines!l fa 41 7.3 a letter signed and st~ed by tile Master stating 112
deiM!I)' in acco-dance with the lerms and conditions 42 that neither he na the c,._ have any outstanding 113
of thiS Corrtract. 43 claims again~ the Vessel. 114
7.4 an in~niOfY. In the form as recommended by the 115
!i. Flna1clal Docurnen(atlon 44 IMO Guuielines as applicable; 116
5.11n exchange for the pej,ment of !he purchase price 45 7.!i a portworthy certiflc11te iSllUI!d by a local marine 117
the Selers shall furnish the Buyers v.;til !he foilowmg 46
wrveyor conflrrmng the material of the work1ng 118
documents at the place of dosing stated in Box 4Q(ai 47
propder(s) as stated en~ 119
whtch shall be in Englrsh Of with a certlfted English 48 120
7.6 a valid gasfree certificate for hotwor11. Such
translation it in a language other than English 49 121
certi11cate shall be rssued by the relevant authOrities
?f."d
(II 1 legal bll of sale transferring tiHe of the Vessel 50 on of Def and shall speofy !hat 122
s ve'JI5C~""'''I
II!J
and stating that 123
encumbrance alit
coff fe reo- fire and 124
whatsoever, nota
are fr re~ 125
as appropriate by
1.1 a rom stating lh the Vessel 126
authority stated in ~(b}; 55 has not carried any nuclear waste or endustriel waste 127
Uil the numtter of commercial invoices mentioned 1n 56
or chemicals prior to the time of notice of readiness being 126
~c) signed by !he Sellers. stattng the purchase 57 let!dered; 129
pr.ee of the VeUt!l and her parlleulars 11s mentimrd 58 7.8 a letter from the Master conflrm.ng lhat tilotre have 130
in Boxes 6-36 as lll~lcllble: 59 , 31
been no remoYals from the Vessel olller than those
(Ill) a certitlcale a tnmsc:ript of registry evtden<:mg the 60
stated rn 6ox 22; 132
ow~rsrup ol !he Vessel end that the Ve$'St'l is free 61
7.9 il letter oi undertakln<;l fr<rn the Sell~($ il\)li:'l'tts 133
from registered encumbrance6.laxes and mortgages 62 that they Wilt am~nge for the fling of the inward general 134
Such eertffic1Ue or transcript ol reg;stry shalt be dated 63 manifest 1~5
not earlier than 5 days prior to the dale of the Sellers 64 7.10 a valid demtis&tion eKemption certificate issued 136
tendering notice of readiness for c:te~i~IY~ 65 137
by the relevant aulhon!ies
~lv) a wnlten undertaking from the Sellers to apply for 66
7.1 - 7 10 Delete as appropriate 138
E~nd supply to the Buyers Iii certificate of delelion co- 67
closed transcriJ)I of registry latest 4 weel(s after delivery 68 8. Delivery 139
ot the Ve-ssel, 69
!...,l.,'f !">\."-'>t11>" ") ()' *~l(\.il L,' lt ... k<~::-< P•f.~ !::J(J
~·r~lt<..1··>~,,~:..e"f•-¥"1 ~! M.<Oiv M!f<""'-~=::: Mf,:.,.ri"'·<?~ ''""~"''''''''"
.... te
-:c-~ )0?'"<¥1\"i''l .;.;x:-:.~~
158
A~PE"N::liCES
APPENDIX 13A
PART II
8.1 The Ve-ssel shall be ~ivered by the Selers to 140 Contract 211
the 6\Jyers under her own power. safely afloel. 141
su~antia!ly intact free ol any fire and/or explosion 142 10. Beaching :'12
damage, free of cargo. free from all charters. wtth 143 FoiiQWing payment and (!~iv~ry of lh~ Vessel the Seller$ 213
anchors .n place and. where applicable. 11.1111 hatches 144 shall as'$1$1 the 6\Jyers in the beactlmg ol the Vessel 214
Closed and derricks IO'Hered and gasfree lor hQwOfk 145 at the Bu)iers de~gneted demoM100 plot The Vessel 215
(see sut.-dau~" 7 6!. as appropriate. wtlh the 146 sttali b<l delivered wdh suffiCJent useablelpumpable 216
approximate emval drefl slated m 9% 1j/ at ttte place 147 fuel. water aOd pl"oo.-tsions fOf one dey's steam1ng and 217
stated m So., 41 (nereinaller 1M Place ol Delivery'). 148 nine days· idling The Sell¥s shall arrange for crew 218
8.2 tf, oo the vessel's amva!, the Place of Del~ iS 149 ac<:Ofding to the safe maornng certificate to rem am 219
'oacce-ssible !Of any reasoo wflatsoever tncludmg but 150 Wllh the Vessel for a penoo ot up to 10 days alter dehvery no
noll!m•ted to port coogestioo. the vessel shall oe 151 m order to assist with the afaesa1d beaching 221
deli\lefl!d aOd taken o-.-er by the 6\Jyers as near thereto 152 The beach1ng of the ves'iel. wh1Ch sttau indude the 222
as she may safely gel at a sate and accesSible berth 153 moo.-tng ot the Vessel from the outer anchorage to the 223
t< I
or at a safe anchOfage whiCh sttelt be des1gneted by 154 beaching plcl, shall be f<lfthe 8\l)ers' risk and expense 224
the 6\Jyers, always prOVIded that oruch berth Of 155 However. the Master sttall co-openate w!lh the 6\Jyers 225
in achi the ~ for 226
anChorage shall ct bea 227
Sellers a"d the
withheld If the 8 The use t i n to as!ilst 228
within 24 hoors the fe the beaChing 229
customary for vessels to wail sttall conshtute the Place e Sel e shall pay the w"Bges and arrange P&! 230
ol Delivery 161 insurance CO\Ief on their crew involved In the beaching 231
8.3 The delwery of the Vessel acc<lfd!ng to the 162 operahoo 23~
prCMsions ot suR·GI~u>e 8 2 shall coos!itute a full 163 11. Bunkers, Equipment etc. 233
pertormaru:e ot the Sellers· obligations according to 16~ 11.1 The Vessel shall be del.vered >Mth everythmg 234
su~G'?v>e 8 1 and ali olher terms and coodd1ons ol 165 beloo91f'g to her on board without removals other than 235
this Cont111d shall apply as if del~ Md taken place 166 those slated in Ogx £2 However. the Sellers sttall have 236
according to sutcdau5e 3 1. 167 tnt! nglltto takt! asttOfe without compensation tne 237
8.4 All expenses incurred poor to delivery of the veuel 168 follo-Mng items. crockery, cvtlery. bnen and other 236
and all local feeSJPo<t ~:hbursernents relating to the 169 artiCles beanng the Sellers· hg Of' name. as wen as 239
Vl!$<>el, including rep.atriatioo of the cr~ shall be for 170 library, forms. etc-. exdvsively fOf use in the Se!tttrs" 240
the SeRers- account wh;le all expenses alter delivery 171 ves5ets. Maste(s, Ofticers' aM cr-'s petsonat 241
ol the V~el. in~k.ldi!'lg import duti'!'s ~nd olher local 172 l:lelooOinas inCluding slop ~he5l and tne Vessel's tog 242
taxes. 1! any, shall be for the Buyers' accoont 173 boOk shall be exclude<! ffOOitne sale, 243
8.5 Tht Vessel with e~hing b<llongingto her $h~il 174 11.2 Unless clherw1se agreed. any remamo"g bunkcOtS. 244
be at the Sellers' nslt aOd exptmse unl>l she 15 175 lubncating oil$. stores. <eqUill'f"enl and spares used 245
delivered to the Buyers 176 or unused on board et tne time of delivery stletl bec001e 246
8.6The Sellers shall deliver the Ves'ielto the Buyer5 177 lh~ Buyer5' property wilhout ext:ra Pllymenl. 247
with the m;nimum amount ot ba!la_st -!tor on board 178 11.3Tile Sellers shall, at the time oldekvery, hand lo 248
w•thoul prejucicing the safely of the Vessel. 179 the Buyers aM plans. specili~atioos and certificates. a 249
8. 7The Vessel shall be delivered with rut any 180 copies hereof. as awdable and whether vahd Of tnlllllid 250
stowawa'fli. cQ!ltrabllnd or wrns and 11mmvnlt;oo on 181 11.Une Seliers are not required to replace such 251
board. otherwise the Bu)l«s shall ha~ the option not 182 matenal. spare parts or stores tnclidlng spare 25~
to accept !he Vessel. >Mthoot prejudice to any ci11.im fQ' 1!13 prOpeller($). if <Voy. ;wht(h may be coo5tim~d a takefl :>5~
1¢$$ MW d~ges the 6\Jyers may nave against 1(!4 Q<JI of splllt! and \l$.ed u repla~ent ::.nor 10 dellver)L :>54
the Sellers urlder nus Contract 185 but all replaced '14>6res sha• ~ !tlati'ltd oo t:>OOrd ?55
9. llme of Oellwr;ICancelllng Dale 186 and shall become the property ot the Buyers 256
9.1 The Vessel shan be ready fOf delivery between the 187 12. Llg~ Displacement Tonnag9 (LOT) 257
dates (bdh inclusive) stated if\~ but tatest on the 188 The purchase price ofihe Vessel shall be based on 258
date stated tn ?% 4::3 (hereinaner "the Cancelling Date") 189 the Vessel's LOT 1n loog Ions os staled in~ 259
9.2(1) Should tile Seller5 antiCipate that not~h 190 excludmg any permanent batla'St The Vessers LDT shall 260
standlng the exercise of ckle diligence. the Vessef will 1Si1 b<l venf\ed by the builders· ong;nal tnm and stability 261
nol be teady for delivery b'/lhe Ca"cetr.ng Oat e they 192 booklet stamped and approved by· Class whiCh shal be 262
may not1fy the n d the Buyers 263
they anllcipate
and propose a
receipt of oruch
opbon either to c nil o
Ci~!.il'¢ ZQ w;ttu" 1 wOfk;"g days of ~eipl of suCh
l(iJ
Hill
a •lable: t
deadwerghl scale andiOf budders' letter

Ves'iel's
6\Jyers an
original or copy ot the builders' capaoty plan With a
7 The
264
265
266
267
263
nol1ce or olaccepting the new date ilS the Cancelhng 199 The ~Uers shall make copies ofthe ab(lll(' c:lo<:uments 269
Oat e. lfthe 6\J);ers have "cl declared their opbon w.th1n 200 available to I he 8u)lers as sooo as possible after lne 270
2 worlling days of rece1pl of the Sellers' ncl;ficatlon or 201 sign.ng ol thiS C<lntraet 271
ifthe 6\Jyers accf!pl the new date, the dale proposed 202
by lhe Sellers sttan be deemed the Cancellmg Oate 203 13. Encumbrances and Maritime Lien$, etc. 272
1111 If this Contract iS main tamed With the r.ew Cancelh"Q 204 The ~ners warrant that the VesH-1. at the tirn~ of 273
Dele. all other terms and condibons hereof sttal! 205 ~ivery. 1s free Iran al charters encumbrances and 274
remaill in full forte and elfeet caneettation or non- 206 mantime lie"s ()(any olher debt$ whatsoever. Should :m,;
cancellatioo by the Buye-rs m accadance With the 207 any claims. which have ~en incurred pn« to !he tme 216
provisions o( ~ub clause 9 2 'I! shall be >Mihou! 208 of delivltry. be madt! ~galnst the Vessel. the Sellers 27i
preJudice to any Clam for loss and/or damage"> !he 209 hereby undertake to Indemnify tile Buyers again$! all 278
Bu'j>er$ may have against the Seller~ under this 210 eonsequC!'I¢1!5 of $\ICI! e~all"l'ls 279
t• ~<>·t ',> / ~' >~t:<>~ }•'•<c,:l\l' l-1"}>' ~ :~.'<> P'>{

\>< $'~' L..,· ,,\'}"~ ,., 1>•i.«'>( ·.-f! ~·.~,, ¢
159
Sf-liP SALE AND PURCf-IASE
APPENDIX 13A
PART II
14. Taxes, Dun and Chargn, etc:. 280 case the deposil1n full shaH be retumed to tile Buyers 349
My taxes. tees and expenses connected wrth the 281 tOgether with intetest at UBOR plus 3% per annum. 350
purchase of the V~ under the Buyers' ownerslltp 282 'Mleltler or not the Buyers cancel lilts Contract the 351
Sllall be f<lr the Buyer'>' account. and charges 283 Se!lers shall make Q.te compensation to the Buyers 352
cc:nnectedwdh the ci0911'1g of the Sellers· reg~Sler shall 21l4 tOt any loss end for an expenses incurred together 353
be for the SeleJS· ae<:ount 285 with interest by their la>lure to give nobce of readtness. 354
to execute a legal transfer Ot to detwet the Vessel with 355
15. Buyers' Watchmen 286 everything bel<lnging to her by the Cancelling Date, If 356
The Sellers agree to allow the Buyets lo place the 287 such failure is we to the proven negligence of ltle 357
number of watchmen stated in Eox 44 on board the 268 Sellers 358
Vessel on her amval at the Place of Delive!y. 289
Whil5t on board the Vessel, such watchmen shall be 290 21. Dispute Resolution Clause 359
ill the sole risk. liability and expense of the Buyets and 291 21.1• Thi-s Contract shall be gO\Itfned by and construed 360
the Bu.,.eJS shaH 1ndenmi1y the Sellers against any 292 in acCOfdance with English taw and any dispute arising 361
claim for loss andlof damages in this respect. The 293 out of or in coonection wtltl this Contract shall be 362
16. Purpose ol Sale

The Vessel is $<lid d
erKI G.
Buyers' watchmen must not intl!ffere with the opefalion
~:~::~
294
5
98
referred to arbitration in LQI1don in ac>:ordance with
he
tne loo
a
Mant
ory fication Ot
ecessaryto
Albltfators Assooaboo (LMAA)

363
364
365
366
367
368
recycllng ooty 81\d the Buyen undel'take that they 'Mil 299 Terms current at the time when the arb~ration 369
oeither trade the Vessel for their own account nQr $ell 300 proceedings are commenced 370
the Vessel to a tmrd party for any purpose other than 301 The reference <Jhan be to three arbil,.tOts. A perty 371
demolition and recycling. The Buyets shall procure 302 wtshmg to refer a dispute to arbitrafioo shalleppant 372
thal tms obligation Is made a tetm of any and~ 303 its arbitl1ltOt and send nOtice d such eppomtment in 373
subsequent ageement for the resale of lhe Vessel 304 V<Tihng to the other party requlnng tl\e other party to 374
17. Safety and Envifonmtm1 305 appoint its own arl>ilrilfor wittl!O 14 calendar days of 375
Both the Sellers and the Buyers 8Je famili8J with the 306 tnat notice and $latlng that~ wiU appant its arbtl1ltor 376
IMO Guidelines and ltle Sellers shaD use iheir best 307 as sOle el'llit,.tOt unless the other party appoints its 377
endeavours to give informatim to the Buyers in respect 308 own arbitl1ltor and $OWeS notice that d has done so 371l
of ltle reC<.li'Mlendatior>$ of the IMO Guidelin~ and ihe 309 within the 14 days specified If the other J)illty does not 379
Buyers lttewise shall use their best endeavours to 310 appoint Its own arbitrator and $OWe notice thalli has 31l0
COfllPIY with such recommendations 311 done so witl\in the 14 days spectfled. the patty refernng :181
The Buyets shall ensure that after deliVery the Sellers' 312 a dispute to arbilrattoo may, wi!hout the requirement of 382
reP!'esentafives lire aRowed to visit the ship recycing 313 any lvrlher PllOf notice to the other party. appdnt ils 383
facility to ascertain that safe and environmentally sound 314 arbitrator as $<lie arbitrator and shall advise the other 384
P4'8ctices tre being CQI1ducted in respect d the :us party aC¢0fdingty. The award of a sote erbitratOt shall
be bindlng oo both parties as If he had been appointed
385
recycllng CJf ltle Vessel 316 386
1) by agreement. 387
~ 18. Ell emptiO!\$ 317 Nd:hing herem shall prevent the parties agreeing in :188
Neither ltle Sellers nor the Buyets shall be under any 318 wnltng to vary these provi~s to provide for ltle 369
habM!Iy If the V~sel should become an actual. 319 appOintment of a $<lie arbitrator 390
cc:nstructi\11! Qr canpromised total loss before deliVery. 320 In eaS4l'5 wtlere nelll1er the claim nor any counterclaim 391
or it dell\«y of the V~sel by the Can¢$lling Date should 321 exceeds the sum of US$50.000 cor such other sum as 392
d:herwise be prevented or delayed due to ®!break of 322 the parties may agree) lhe arbl,.lion shall be 393
war, reS~ra~nt of G<Nemment, Princes. Rulers or People :m conducted in accordance with the LMAA Small Claims 394
of any Nat1or> or the United Natioos. Act of God. or any 324 Procedure current at the bme when the art:>ttration 395
other calJ'Se wtlalsoeverbeyond!he Buyers' or the 325 proceed.ngs are commenced. 396
Sellers· control. 326 21.2" This Contract shaH be gO\Iefned by and construed 397
in acCOfdance with Title 9 of tl\e l)liled Stales Code 398
19. Buyers' Default 327 and the Maritime l.8w of the United Stales and any 399
Should ltle depOSit not be paid in accordance wiltltlle 328
dispute arising out of or in conne<:tioo with this Contract 400
p(ll"!SIOOS of~. the Selers shall have the nght 329 shall be referred to three persons at New YOfk. one to 401
to cancelltlis Contract. and they shall be entitled to 330
402
InN G
app ere . and the
darn cc:mpensa d
lfd 11'1 or. that of any 403
expenses incurre t
3% per annum.
0 lh rpose$ of 404
nf n1 may entered on 405
Should IM pureha
an ewa ompetent jui'isdiction The 406
provided for in this Contract the SeUers shall have !he 335 proceedings shall be conooc:ted in ac:coo:lance with 407
right to cancel the Contract. in wtl>ch case the amount 336 the rules of the SOCiety of Maritime Arbot,.!or$" Inc. 4()8
deposited together with inlere$1. earned. if any, shall 337 In caS4l'5 wtlere neither the claim nor any counterdam 409
be !orfded tome Sellers tfltle deposit does na CO\Itf 338 exceeds the sum of U$$50,000 (or such other sum as 410
the Selers· losses. they shall be entttled to claim 339
the parties may agree) the arbtratiorl &IIIII t>e 4'!1
lvlther oom~s~tiOn tor their losses end 1« all :!.40
CQI1Wcted in accordance with ltle ShOtlened All>i!rabon 412
expenses together with interest at LIBOR plus 3% per 3~1
Procedure of the SOCiety of Maritrne Arbitra!Ot$. Inc 413
anl'lum. 342 current at tM t•me wnen the 8fl)itrlltion proceedings 414
20. Sellers' Default 343 are commenced. 415
Should the Sellers fad to~~ Mtlc~ of rea<!lness '" 344 21.3"' This Contract shatlt>e QO\Itfned by lind eor>strued 416
z
accordance wi!h <;;!,~.~.H~.. or fail to execute a legal 345 in acCOfdance with the laws of the place mutually
allfeed by ltle parties and any diSpute ansing out d or
417
418
tronsfef Qr to deliver the Vesstt wrth ~hti'IQ 346
bel(ll19ing lo her by the Cancel"ng Date, tile Buyers 347 in connectim with !his Contract shall be referred to 419
Sllallllave the ri\}ht to cancel the Contract. in which 348 arbitration at a mutuallY agreed place, subject to the 420
,,, ,Wf">~;....;n 1~~ !!';.;,) r.·,q'''

,;r,aJ ~X~'f b'M"-~.,
160
APPENDIX 13A
PARTH
~oEMOIJSHCON" Standard Contract for the Sale of Vessels for Demolition and Recycling
procedures applo:able there 421 party to seek such rel;ef or take such steps as 1t 452
21.4 Notwith'Standing 21 1. 21 2 or 21 3 aboVe. the 422 conSiders necessary to protect (s ooterest. 453
parties may agree at any time to refer to med•at1on any 423 (V) Either party may advise the Trtbunallhat they he11e 454
difference end/or dispute arismg out of()( 10 conne<:tioo 424 agreed to mediation. The a~ration procecrure shall 455
w1tn thl$ Contrad 425 conhnue during the conduct d the mediation but tl'le 456
In me ca-.e d a di<ipote Hl res~ at whiCh &rb1trat1on 426 Tnoonat may take the mediation timetable imo account 457
has beeo commenced under 21.1. 21 2 or 21.3 above 427 when setting thtt bmetable fot steps in the arbltrallon 458
the following Shall apply.- 428 (Yil Unless cthei'Wise agreed Of spltQ!ied in the 459
lll E~her party may at 8"'f tJme and from tme to time 429 mediation terms. each party shall bear its own costs 460
elect to refer the <tspute or pert of the <l$j)Uie to 430 incurTed in the meaetion end the parttl'> shan share 461
mediation by seNice on the other party of a 'Mllten 431 equally the mediator's costs and expenses 462
notu:e (the •Me<Jiatlon Notice') cal1mg on the Other party 432 (vii) The meaation process Shall be without f)l'ejudice 463
m
to agree to medation 433 and confidential and no information or documents 464
(ill The Other party shatl thereupon 'Mihin 14 calendilr 434 disefo$ed during 11 shel1 be revealed to the Trioonal 465
days of receipt d the Mediation Notice confirm that they 435 except to the eldeol that they are dsclosable under the 466
agree to medation, in which case the part1es 'ShaH 436 law and procedure g<Neming the aroitrabon. 467
thereailer agr 1'1 l 468
II!J
(NattJ· at mediation
days, failing ' may nece limits) 469
mediator wiR .5 PAR ·atelyfilledin, 470
T ribu nat (1he · Cl se shall ly SUb-<:tause 471
may designate fa ll'lal purpose The mediation sl'lall 441 1!..1 shaH apply in all cases. 472
be conck.lc1ed in such place and in accQfdance with 442 :21..1 i l l and 2.1.J. are llllern&lil.!rt$, lndiclllle 473
such procedure and on such terms as the parties may 443 allernalive ttgreed in ~ 474
agree or, "' the - n t d diSagreement, as may be set 444
by the mediator 445 22. Notices 475
llll) lfthtt cthttr party doe$ not agree to meaattt, thai 446 22.1Any notice to be !Ji"'en by eitl'ler party to the other 476
fact may be broughlto the attention d the Tlioonal and 447 party shall be tn writing and may be sttnt by fax. e-mail. 477
may be taken onto account by tne Tribunal when 448 registered or recorded mail Of by personal service. 478
allocating the costs d the etbltration as between tl'le 449 22.2The addrltSS d the Parties for service d such 479
parttes 450 commumcalion shell be as stated 111 ~aM ~ 480
jiv) The mediation sl'lall not affect tne right d either 451 respectiVely. 481
161
APPENDIX 14
"Fairplay" Market Report
Markets
-Demolition -
Scrapping slow
after busy week
THE demolition market IS as was the 1975-built, 89,644 The 1979-built, 5,657 dwt been finalised and she is making
finally showing signs of dwt, 16,732 ldt Coral Sea II. reefer Syros Reefer and the her final voyage for Indian
weakening after a busy week More specialist tonnage, 1977-built, 14,678 dwt, 6,082 scrapyards for an undisclosed
for brokers. in the form of the 1977 -built ldt general cargoship Tasmia sum.
The largest vessel to be 127,209 dwt, 20,462 ldt ore- were sold for demolition, but A larger vessel that has also
sold for demolition was the oiler Peregrine VIII. was sold the full details of the price and been purchased at an auction by
very large crude carrier Kudos. on as "as is" basis at her last the final destination for both Indian demolition yards is the
This 1975-built 233,352 dwt location in Portugal for a price remain hazy. 1970-built, 40,610 dwt, 10,266
35,527 ldt tanker headed for of $66 per ldt, a price reflective Bulk carriers have been on ldt general cargoship Med
Bangladesh beaches at a rate of of her condition. the shopping list for Indian Salvador for $146 per ldt.
$144 per ldt. Another vessel sold on as breakers, as the purchase of the Staying with Indian breakers,
Moving down in size, the "as is" basis was the 1971- 1970-built, 45,206 dwt. 9,844 a further bulk carrier has been
1977 -built 132,285 dwt 21,733 built. 38,930 dwt, 14,055 ldt ldt Marinaki for $152 per ldt purchased. The 1977 -built,
ldt tanker Romina G was also gas carrier Havaw. Her location illustrates. 19,027 dwt, 4,807 ldt Tenedos
sold to Bangladesh breakers for was Fujairal1 and she was sold The previously reported sale received $152 per ldt.
a healthy price of $150 per ldt, to Indian breakers for a price in of the 1973-built, 31,295 dwt,
the region of $153 per ldt. 7,240 ldt tanker Sant III has
Owners of a bulk carrier with of $66 per ldt reflects her materialised. She was sold to a country is 106% ahead, with
recent engine problems have crankshaft damage. Chinese scrapyard for $120 per 2.9 m dwt of tonnage dismantled
decided to give up the vessel Meanwhile, the 1973-built, ldt. so far this year. India however,
for demolition. The 1975- 8,265 dwt, 3,500 ldt general In amendments to previously remains the largest breakers'
built, 16,534 dwt, 4,217 ldt cargoship Dubai Orient was reported items, three tankers yard with 3.5 m dwt of tonnage
Ege K had a malfunction in her said to have been sold to Indian received differing prices. The scrapped, an arnmalised nse
engine at the end of March and interests under private terms, Monte Chiaro achieved a price of 25% compared with 1999,
was towed to Mina Saqr. Now while the 1975-built 16,618 of $16 7 per ldt, the Franco according to Clarkson data.
her final destination will be to dwt, 6,382 ldt 'tween decker' D 'Alesio sale fulalised at $123 This year, Allied Shipbroking
Indian beaches. although the Galina II was reported sold to per ldt and the Petro Mersey reports, 71 tankers, total
details of the price she received Indian breakers for $16 7 per was purchased for $167 per ldt. 8.515 m dwt, and 72 dry bulk
were not forthcoming. ldt. Also of interest are the carriers, total 2.5 m dwt. have
The 1977-built 3,501 dwt, Further to an earlier report, figures that indicate China has been scrapped. The total
2.939 ldt ro-ro Fast Alexandria details of the demolition of increased its buying activity in number scrapped this year-Is
has been sold on an "as is" the 1976-built, 53,341 dwt, the demolition market this year. 174 of 11.581 m dwt.
basis in Portugal. The price I 0,551 ldt Mentese have now Annualized figures suggest the
162
AP?E'JDICES
APPENDIX 15
Lloyd's List Market Report
1981. 86,417 DWT, 51,967 GT. Built /HI,

Container and Bulkers Semt-Pielstick, 15,000bhp/14. 7kt.
PETRO VISTA: sold by Petroships,
Multi-purpose EVGENIA (Ore Strenghtened): sold by Singapore to undisclosed interests,
Leondros, Greece to Tsakos, Greece, $0.87M. 1976. 5,640 DWT, 3,454 GT.
$4.5M. 1981. 68,427 DWT, 37,939 GT, Built Tokushima Zosen, Hanshin,
ASTRA LIFT (Heavy Lift): sold by
1,064 TEU. Built Kasado Dockyard, 3,800bhp/10.5kt.
Carsten Rehder, Germany to undisclosed
interests, St.15M. 1978. 3,861 DWT, B&W, 14,013bhp/15kt.
3,038 GT. Built CN Solimano, Nohab, HYDROBULK: sold by Sonderjysk
4,200bhp/15kt. Erhvervsinvstg, Denmark to Hans
BOL (Multi-Purpose) Tbn-Galina IV: Torkelsen, Norway, $1 .8M.7986. 4,319
sold by Jadroplov, Croatia to Koalbye DWT, 3,088 GT,130 TEU. Built Svendborg Scrapped
Shipping, Ukraine, $1M. 1980. 14,930 Repair Yard, Mok, 2,450bhp/12.Bkt.
DWT, 12,327 GT, 388 TEU, Built Khetson KANARIS en bloc with PELOPIDAS: BRITISH RANGER (Crude Oil Tanker):
Shipyard, B&W 10,600bhp/18kt. sold by Safety Management Overseas, sold by BP Amoco, UK to Chinese
CHALLENGER K (Ro-Ro) ex-Kirl< Greece to undisclosed interests, $2 .65M breakers, $4.62M ($125 per LOT). 1976,
Challenge sold by Kirk Line, US each. 197l39, BOO DWT, 22,473 GT. Built 269,881 DWT, 130,145 GT. Built Mitsubishi
to undisclosed interests, $1.006M. Mitsubishi HI, Sulzer, 12,000bhpl15kt. HI, Mitsubishi, 10,800bhp/15kt.
1979. 2,823DWT, 5,945 GT, 260 TEU. GEORGE (Multi-Purpose) ex-Aikaios:
Built Ekinore Shipbuilding, Mak, sold by Aegeus, Greece to Indian
4,500bhp/15kt. breakers, $0. 78M ($140 per LDT). Last
ETTRICKBANK (Multi-Purpose)
Gregor: sold by Ormos, Greece to
ex- Tankers sale: 1980, $8.25M. 1977, 16,875 DWT,
11,420 GT. 192 TEU. Built Sunderland
undisclosed interests, $1.3M. 197l Shipbuilding, Doxford, 10,800bhp/17kt.
18,632 DWT, 13,542 GT. 545 TEU. Built BRUCE SMART (Crude Oil): en bloc MEGA BAY (Crude Oil Tanker) ex-Horso
Mitsubishi HI, Sulzer, 9,900bhp/14kt. with J DENNIS BONNEY & JOHN Visby: sold by Mega Tanker, Hong Kong
YOUNG: sold by Chevron Transport, to Bangladeshi breakers, $3.29M ($140
GASTELLO (General Cargo), en-bloc
US to General Maritime, US. BRUCE per LOT). Last sale: 1989, $21.50M. 1976
with NOGLIKI, SLAVNOE & TOMARI
SMART: $28.5M. 1991.157,632 DWT, 139,209 DWT, 71,107 GT. Built Mitsui Eng
Tbn-Aiexandria: sold by ASP-Seascot,
UK to undisclosed interests, $2.8M each. 90,369 GT. Built lshibras, Sulzer, & Shipbuilding, B&W. 27,326bhp/15kt.
1992 (GASTELLO 1993). 4,168 DWT, 21,000bhp/15kt. J DENNIS BONNEY;
$28.5M. 1991.157,584 DWT, 90,369 GT. NISHA (Bulk Carrier Ore Strengthened)
3,972 GT, 224 TEU. Built Sedef Gemi, ex-Jag Vishnu: sold by Great Eastern
B&W, 4,563bhp/13.1kt. Built /shibras, Sulzer. 21,000bhp/16kt.
Shipping, India to Indian breakers,
JOHN YOUNG: $28M. 1990.155,547
RICKMERS DALIAN (Multi-Purpose): $1.01 M ($152 per LDT). 1977,27,481 DWT,
DWT, 88,946 GT. Built /HI, Sulzer,
sold by Rickmers-Linie, Germany to 16,731 GT. Built Osaka Zosensho, Sulzer,
21,000bhp/15kt. Ships to be operated
Middle East Interests, 11 ,550bhp/15kt.
by Universe Tankships, US.
Sold recently by Rickmets Unie to Middle OILINVEST PRIMA (Crude Oil Tanker)
DANUBE (Products) Tbn-Harting en ex-Oilinvest: sold by Nameseco Holland,
East interests following the company's
bloc with TRENT: sold by OMI Corp, Netherlands to Bangladeshi breakers,
sale by Hopog-Uoyd, the 24,080
US to Ga Chau, Hong Kong, $21M. $3.08M, ($t47 per LDT). Last sale:
DWT Rickmers Dalian is not a pretty
DANUBE $10.5 1991. 29,998 DWT, t991, $14.80m, 1975, 134,999 DWT,
sight according to our picture, Hardly
surprising when it has switched names of 17,018 GT. Built Szczecincka, B&W. 75,215 GT. Built Oresundsvarvel, B&W.
least 11 times indicating several different 8,845bhp/14kt. TRENT $10.50M, 27,326bhp/14kt.
operatots during its 22 yeats. The latest Last sale: 1999, $11M. 1991. 29,998
PROFESOR K BOHDANOWIZ (Chemical/
sale price was just $2.25M. 1978.24,080 DWT, 17,018 GT. Built Szcecinska,
Oil Tanker): sold by Zegluga Polska,
DWT, 16,930 GT, 536 TEU. Built Aker, B&W B&W. 9,90Bbhp/14kt. Both ship to be
Poland to Indian breakers, $0.57M ($142
13, 100bhp/18k/. operated by Denhilm, UK.
per LOT). 1974,9,694 DWT, 6,688 GT. Built
(photo Raff Witthohn) LEON (Crude Lodose Yar1, MWM, 3,000bhp/14kt
Oil) ex-Maritza: RASTINA (Container) ex-Isla de
sold by Olympic Fuerteventura: sold by Fllmex, Canary
Gulf Tankers, islands to unknown breakers, price
Greece to unknown. 1960, 1,956 DWT, 1,576 GT.
Middle East 91 TEU. Built Juliana Gijonesa, MTM,
interests, $1M. 2,349bhp/12kt.
Last sale: 1998, STANDARD ENDEAVOUR (Bulk Carrier
$1.1M. 1977. Ore Strengthened) ex Chalmette: sold
16,540 DWT, by Standard Bulk Trans, Greece to
10,791 GT Indian breakers, $1.67M ($147 per
Built Baltiyskiy LDT). Last sale: 1984, $4.6M. 1972
Zavod, B&W. 69,408 DWT, 32,140 GT. Built NKK, Sulzer,
9,000bhp/14kt. 15,000bhp/16k.t
NOL PAVO WESER ORE (Ore/Oil Carrier) ex-
(Crude Oil) ex- Torafola. sold by Associated Maritime Co,
Neptune Pavo: Hong Kong to Chinese breakers, price
sold by Neptune unknown. 1974, 278,734 DWT, 134,366
Iota Lines, GT. Built Uljanik Brodgro.dilisre. B&W.
Singapore to 40,000bhp/16.5kt.
Brave Maritime, All details given in good faith but without
. . .illllililllii.:O;;.:;~;.;_..;,...._~ Greece, $5.3M. guarantee
163
Sr~1P SALE AND PuRCHASE
APPENDIX 16
Bill of Sale
BILL OF SALE
t. Seller(s) (state full name, description and address) 2. Buyer(s) (state full name, description and address)
3. Name of Vessel 4. Type of Vessel 5. Port of Registry 6. Call Signs
7. Gross Register Tonnage
tt. Details of subsisting or outstanding Mortgage(s) or other encumbrances, if any; also state other details, if any, relevant to the sale and transfer of the Vessel
The Seller(s), named in Box 1, who is (are) the Owner(s) of the Vessel described in Boxes 3 to 8, both inclusive, hereby confirm(s) having sold and
handed over the said Vessel with everything belonging to her to the Buyer(s), named in Box 2, for the Purchase Sum, as stated in Box t 0.
Unless otherwise stated in Box tt, the Seller(s) warrant(s) that the Vessel is free from encumbrances, debts and marhime liens of any kind whatsoever
and confirm(s) that the sale and transfer of the Vessel is effected in accordance whh Memorandum of Agreement dated as indicated in Box 9.
In consideration of the said Purchase Sum, paid to the Seller(s) by the Buyer(s), the Seller(s) hereby transfer(s) the Vessel to the Buyer(s) so that
the Vessel shall hereinafter become his (their) legal property.
N WITNESS whereof this Bill of Sale has been issued and signed at the place and on the date stated in Box t2 in the presence of the Witness(es)
as indicated in Box t3 whose signature(s) has (have) been certified (if required) by the person indicated in Box t4.
t2. Place and date and signatur
13. The undersigned Witness(es) hereby certifies(y) the correctness of the Seller(s) · signature(s) to this Bill of Sale and the date hereof (state full
name, thle and address of Whness(es))
t4. The undersigned Consul (General) hereby certifies the correctness of the Whness(es)' signature(s) as stated in Box t3
164
MOCK EXAMINATION
DO NOT turn to the next page until you have followed the suggestions set out below.
Overleaf is a sample examination paper. In your own interest do not look at it yet but instead,
do the same revision of the course as you would for any examination.
On completing your revision, put away your notes, have pens and papers ready and set aside
three hours when you will not be interrupted, in other words create, as near as possible,
examination room conditions.
It is recommended that you hand write this mock examination. You will have to write the
actual examination and many students find that it is difficult to write legibly for three hours
without practice. If your handwriting is illegible you will lose marks. Examiners cannot mark
what they cannot read.
Carry out the instructions on the question paper and send your answers to your tutor for
marking. (Note your start and finish times on the front answer paper).
165
SHtP SALE AND PuRCHASE
166
THE INSTITUTE OF CHARTERED SHIPBROKERS
MOCK EXAMINATION
Time allowed- Three hours
Answer any FIVE questions- all questions carry equal marks
1. Your ship-owning company has agreed terms to purchase a second-hand Bulk Carrier
and has successfully secured a Time-Charter for this ship commencing at the Port of
Delivery immediately after purchase. Prepare a plan of action in the correct order of
occurrence of the tasks and procedures that your company will have to perform during
the period from the day of signing the MOA for this ship right up to the day the ship is
handed over to the new Time Charterers.
2. In the context of the second-hand market, comment upon the significance of the
following:
(i) "Subject Board Approval"
(ii) The importance of exact tonnage certificate to a ship-owner
(iii) Buyer Beware
(iv) "The Buyers shall inspect the vessel without opening it"
3. The Documentation Clause of the 1993 NSF sets out the documents to be provided by
the Sellers in exchange for payment of the purchase price. The Clause itemises several
standard documents that will almost always be needed but a prudent Buyer will also
negotiate by way of an addendum to the printed terms various additional documents to
be presented by the Seller at the time of delivery, covering both ashore and on board ship.
Using a ship type of your choice, comment on the documents in the printed Clause itself
along with all possible additional documentation that this Buyer may have incorporated
into the MOA.
In respect of the documentation issued by the Seller, how can a Buyer seek protection
against fraudulent paperwork?
4. There are certain types of insurance policies associated with the sale and purchase of
the ships in respect of the new-building, second-handed and demolition markets. What
are these and what precisely are these policies designed to cover. For each policy, who
pays the premium?
5. In the family of tankers, the Aframax is known as "the workhorse" of the industry Selecting
either a clean or dirty product trading Aframax give a full description of this tanker with
particular attention to the characteristics that relate to the products being carried. Detail
these products along with their main trading routes.
Compliment your answer with a comprehensive drawing of both the ship and a world
map showing the trading routes.
6. When selling a ship for further trading, the NSF provides an essential Clause which covers
the items to be included in the purchase price and those, unless otherwise agreed, that
must be paid for by the Buyer as extra items.
Explain in full the terms of this Clause making particular reference to each of the
following:
(i) Spares on order and forwarding charges, if any
167
(iii) Spares taken out of spare parts and spare equipment and used as a replacement prior
to delivery
(ii) Radio installation and navigational equipment
(iii) Payment under the terms of the Clause
7. Analyse the different methods of ship finance for the purchase of a second-hand ship for
further trading. To what extent would this differ if the purchase were for demolition?
8. 2003 saw historical high freight rates in the cape size dry bulk market. Analyse the
reasons for these record high daily rates and what possible effects do such rates have
on the cape-size new-building, second-hand and demolition markets.
168
MocK ExAMI'JATION
169
170
MOCK I:::XAMINA"lON
171
Sf-liP ~ALE AND t-'URCf-lASE
172

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SHIP SALE

Witherby Shipping Business

2011/2012 Centenary Edition

ISBN 978 1 85609 464 1

© Institute of Chartered Shipbrokers

British Library Cataloguing in Publication Data

Notice of Terms of Use

For further details on TutorShip courses please contact tutorship@ics.org.uk or visit

SHIP SALE AND PURCHASE SYLLABUS

Be aware of size ranges of bulk carriers including Capesize, Panamax, Handy-size.

Understand the terminology of measuring ships including:

Thoroughly understand the importance of displacement (especially light displacement)

Understand what information is contained in General Arrangement Plans.

REGISTRATION AND CLASSIFICATION

Understand the advantages and disadvantages of each form of registration.

THE PARTIES INVOLVED

Understand the influence on markets of external factors including natural catastrophes;

CONTRACTS AND DOCUMENTATION

Understand how the negotiating process leads to a conclusion necessitating a recapitulation

FINANCE AND INSURANCE

Understand the procedures of leasing and bareboat chartering as methods of acquiring

Ship Sale and Purchase Syllabus v

1.2 Size and Tonnage 1

1.3 Cargo Categories 4

1.4 Ship Types 5

1.5 Bulk Cargo Carriers - Tankers 5

1.6 Tankers and Oil Pollution 10

1.7 Bulk Carriers - Dry Cargo 11

1.8 General Cargo Ships 12

1.9 Refrigerated Cargo Ships 13

1.10 Container Ships 14

1.11 Ro-Ro Cargo Ships 15

1.12 Passenger Ships 15

1.14 Types of Machinery 18

1.15 General Arrangement Plans 19

1.16 Self-Assessment and Test Questions 20

2.2 The Growth of 'Open' Registries 22

2.3 The Current Scene 23

2.4 The Positive and Negative Elements of Flags of Convenience (FOGs) 23

2.5 The Response by Traditional Maritime Nations 25

3.2 Other Functions of Classification Societies 32

3.3 Tonnage Measurement Regulations 34

3.4 Practical Application for the Sale and Purchase Broker 34

3.5 Classification Society Records 35

3.6 Self-Assessment and Test Questions 35

4 THE SHIP SALE (PART 1) 37

4.2 The Structure of an Offer 38

4.3 Inspection and Inspection of Records 40

4.4 Delivery - Where and When? 41

4.5 Dry-Docking or Diver's Inspection 42

4.6 What is Included in The Price? 43

4.7 Bunkers and Lubricating Oils 43

4.8 Buyer's Crew on Board before Delivery 44

4.9 Same Condition as When Inspected 44

4.10 English Law/Arbitration London 45

4.11 With Class Maintained Free of Recommendations and Free

4.12 The Offer and Counter Offer 46

4.13 Self-Assessment and Test Questions 48

5 THE SHIP SALE (PART 2) 49

5.2 Concluding the Sale 49